Recently, Fe single-atom catalysts activating peroxymonosulfate (PMS) have been of great potential to degrade recalcitrant organic pollutants. However, the mechanism of the unfavorable metal agglomerates produced throughout high-temperature pyrolysis on the Fenton-like reaction still remains confused. Herein, an efficient and stable catalyst integrating Fe single atoms with ultrafine atomic clusters (FeUAC@FeSA-NC) was successfully synthesized. The FeUAC@FeSA-NC/PMS system exhibited nearly 100% sulfamethoxazole (SMX) decomposition performance over a broad range of pH 3.0–9.0. Considering the difference in SMX degradation rate with or without Fe ultrafine atomic clusters, the catalytic performance of leached Fe ions, and the permissible Fe leaching concentration, it was not necessary to acid leach the FeUAC@FeSA-NC catalyst before use. Density functional theory (DFT) calculations manifested that the isolated Fe single-atom site neighbored by ultrafine atomic clusters acted as the optimal active site for PMS activation, and simultaneously the pyrrolic N served as the SMX adsorption site. The reactive species, including 1O2, O2−, SO4− and OH radicals and activated metal-peroxo species (Fe-PMS*), played the key role in FeUAC@FeSA-NC/PMS system. The satisfactory SMX removal efficiency and mineralization rate in actual wastewater imply that this efficient heterogeneous catalytic PMS system is a promising approach for sustainable wastewater reclamation applications.