The total conversion and the; oil yield in liquefaction tests of iron ion-exchanged Black Thunder coal were found to increase by up to 23 and 18%, respectively, relative to the untreated coal. The ion-exchanged coal samples were prepared by stirring a slurry mixture of the coal and ferric acetate [Fe(OOCCH3)(3)] in a 10-L fermenter. : The ion-exchange process, in which iron was exchanged primarily for calcium and magnesium, yielded a highly dispersed catalytic iron species for coal liquefaction. Fe-57 : Mossbauer and X-ray absorption fine structure (XAFS) spectroscopies and electron probe microanalysis (EPMA) X-ray mapping were used to characterize this iron species after the ion-exchange process. The results indicate that the added iron is present in bimodal form. The majority of the iron is present as oxyhydroxide particles ranging from 25 to 100 Angstrom in diameter, while the smaller fraction is believed to be molecularly dispersed ferric ions held at ion-exchange (carboxyl) sites. With sufficient sulfur present in the system, the iron is rapidly transformed to pyrrhotite (Fe1-xS) during liquefaction.