Density functional theory (DFT) calculations were carried out in a study of the mechanism of benzene oxidation by N2O to phenol over an extra framework dimeric [FeOFe]2+ species in ZSM-5 zeolite represented by a [Si6Al2O9H14(Fe(µ-O)Fe)] cluster model. The catalytic reactivity of such a binuclear species is compared with that of mononuclear Fe2+ and (FeO)+ sites in ZSM-5 investigated in our earlier works at the same level of theory (J. Phys. Chem. C2009, 113, 15307; 2010, 114, 12580). The activation energies for the elementary reaction step involved in the benzene hydroxylation over the binuclear and the mononuclear iron sites are comparable. The major difference in the catalytic behavior of the systems considered is related to the ability of Fe3+-containing sites to promote side reactions leading to the active site deactivation. Regeneration of the active site via the phenol desorption is much less favorable than its dissociation resulting in the formation of very stable grafted phenolate species on both the [Fe(µ-O)Fe]2+ and (FeO)+ sites. In the case of Fe2+ sites such an alternative reaction path does not exist resulting in their stable catalytic performance. Benzene hydroxylation and phenol formation over the binuclear (Fe(µ-O)Fe)2+ sites in ZSM-5 are promoted in the presence of water. These computational findings are consistent with the experimental observations and allow their rationalization at the molecular level.