The impact of water and red mud-like Fe oxide catalysts on aquavisbreaking (AVB) of heavy-oils was studied under various circumstances. Vacuum residue (VR) was employed as a good substitute for low-viscous bitumen grades. The reaction products were separated into SARA fractions using open-column liquid chromatography (OCLC), and boiling point groups were classified using thermogravimetric analysis (TGA). In addition, Fourier-transform infrared (FTIR) spectroscopy was used to study the structural features of VR and its derivatives. It was observed that the thermal visbreaking of VR led to a severe coke formation with asphaltene (ASP) to coke selectivity over 130 %, while the addition of water and Fe catalyst could increase the conversion of ASP to liquid oil products while inhibiting coke formation, resulting in improved conversion of ASP. Furthermore, the structural properties of spent catalysts recovered after reactions were analyzed using X-ray absorption near edge structure (XANES) and X-ray diffraction (XRD) to identify the active phase, confirming that the Fe precursor is converted to a 20–30 nm Fe2O3 and Fe3O4 during VR AVB. Moreover, the addition of carbon additives to AVB further improved the dispersion of ASP and catalyst particles, contributing to the decrease of the selectivity for ASP conversion to coke by 50 %.