Two isomorphously substituted iron ZSM-5 catalysts with different crystal sizes (2.5 and 0.4 mum) were prepared by hydrothermal synthesis. The samples with a Si/Al ratio of 32 and 34 contained 0.64 and 0.60 wt% of iron, respectively, and were activated by steam at 873 K. The zeolites were characterized by XRD, SERI, TEM, FTIR, and UV-vis spectroscopy, and EPR, The preparation procedure is an efficient method for obtaining highly crystalline white samples with a high dispersion of iron. Upon calcination and subsequent treatment with steam at 873 K, structural changes occurred. Spectroscopic studies indicated that, during the steaming process, Fe-O-Si bonds were broken and iron migrated toward extraframework positions. EPR revealed that, after the steaming procedure, iron centers with ag value of 6 and higher extending to the zero field formed. Both signals disappeared upon reduction, and we suggest that these iron sites are involved in oxidation with N2O. This zeolite catalyzed the hydroxylation of benzene with nitrous oxide as the oxidant, resulting in high selectivity (>99%) and phenol yields (up to 27%). This is in accordance with previous studies. Experiments with 1,3,5-trimethylbenzene, which is too large to fit inside the pores, demonstrated that the oxidation of benzene to phenol took place within the zeolite pores and not at the external surface.