A number of experimental studies have shown recently that ppm-level additions of nitric oxide (NO) enhance the rate of nitrous oxide (N2O) decomposition catalyzed by Fe-ZSM-5 at low temperatures. In the present work, the NO-assisted N2O decomposition over mononuclear iron sites in Fe-ZSM-5 was studied on a molecular level using density functional theory (DFT) and transition-state theory. A reaction network consisting of over 100 elementary reactions was considered. The structure and energies of potential-energy minima were determined for all stable species, as were the structures and energies of all transition states. Reactions involving changes in spin potential-energy surfaces were also taken into account. In the absence of NO and at temperatures below 690 K, most active single iron sites (Z(-)[FeO](+)) are poisoned by small concentrations of water in the gas phase; however, in the presence of NO, these poisoned sites are converted into a novel active iron center (Z(-)[FeOH](+)). These latter sites are capable of promoting the dissociation of N2O into a surface oxygen atom and gas-phase N-2. The surface oxygen atom is removed by reaction with NO or nitrogen dioxide (NO2). N2O dissociation is the rate-limiting step in the reaction mechanism. At higher temperatures, water desorbs from inactive iron sites and the reaction mechanism for N2O decomposition becomes independent of NO, reverting to the reaction mechanism previously reported by Heyden et al.