The effect of severe (hydrothermal) treatment on Fe/ZSM-5 prepared by sublimation of FeCl3 is studied by a combination of high-resolution TEM, EXAFS, 57Fe Mössbauer spectroscopy, IR, UV–vis, nitrogen adsorption, 27Al NMR spectroscopy, and low-temperature nitrous oxide decomposition. The heterogeneous nature of Fe/ZSM-5 is stressed with a preponderance of iron oxide particles on the external zeolite surface. Additionally, neutral iron oxide nanoparticles and charge-compensating iron complexes are located in the micropores. Severe calcination at 973 K induces the growth and ordering of the iron oxide aggregates. Moreover, some of the occluded neutral iron oxide nanoparticles are transformed into charge-compensating iron complexes upon a protolysis reaction with the Brønsted protons. These effects are more pronounced in the case of steaming at 973 K, additionally resulting in the removal of Al from framework positions. Despite the low dispersion of iron oxide in Fe/ZSM-5, relatively low Fe---Fe coordination numbers were derived from the EXAFS data for Fe/ZSM-5; high-temperature treatments increased this number. This low value points to the disordered nature of the iron oxide aggregates rather than to the presence of an abundant fraction of binuclear iron clusters. Titration of sites active in nitrous oxide decomposition shows that their amount increases upon increasing severity of treatment of Fe/ZSM-5. Their number, however, remains very small (a few percent of the total iron) and appears to correlate to the amount of Fe2+ present after room temperature exposure to vacuum conditions. A comparison to a commercial HZSM-5 zeolite with a very low iron content is made. The catalytic performance of these materials is discussed in a companion paper (J. Catal. (2003)).