Spin-dependent tunneling across a highly textured MgO insulating barrier has received much attention due to its potential applications in various spintronic devices. However, the interfacial magnetic and electronic structure of a prototypical realization of this in Fe/MgO/Fe and the effective band gap of the MgO layer are still under debate. In order to resolve these issues, we have employed standing-wave excited core and valence photoemission, as well as core-level magnetic circular dichroism (MCD) in photoemission, to study the Fe/MgO interface with subnanometer depth resolution. For our synthetic procedure, we show that the Fe/MgO interface is linearly intermixed in composition over a length of \ensuremath{\sim}8 \AA{} (\ensuremath{\sim}4 monolayers) and that there is a magnetic dead layer \ensuremath{\sim}2--3 \AA{} thick. The unambiguous extraction of depth-resolved density of states (DOS) reveals that the interfacial layer composition is mostly metallic and nonmagnetic FeO${}_{\mathrm{x}}$, with x \ensuremath{\cong} 1, which accounts for a smaller magnetoresistance compared to theoretical predictions. The formation of the magnetic dead layer (FeO) at the interface should also reduce the tunneling spin polarization. The analysis of our data also shows a clear valence band edge of ultrathin MgO layer at \ensuremath{\sim}3.5 eV below the Fermi level (${E}_{\mathrm{F}}$) that is very close to that of single crystal bulk MgO. An analysis that does not consider the interdiffused region separately exhibits the valence band edge for MgO layer \ensuremath{\sim}1.3 eV below ${E}_{\mathrm{F}}$, which is significantly closer to the MgO barrier height estimated from magnetotransport measurements and further suggests that the Fe/MgO interdiffusion effectively reduces the MgO band gap.