Controlling thickness and morphology of transition-metal thin films used in magnetic random-access memory fabrication is a major challenge. Thermal dry etching has emerged as a method of choice for preparing the desired films; however, the mechanisms of the underlying surface processes are very difficult to assess. In this work, thermal dry etching of metallic iron by using sequential exposure to chlorine gas and 2,4-pentanedione (acetylacetone, acacH) was investigated. The mechanism of reacting acacH with chlorine-modified iron surface was studied by following the fragments desorbing from the surface in temperature-programmed desorption experiments in half-cycle processes that compared the chlorinated, oxidized, mixed (Cl and O), and clean (sputtered) iron films. In situ Auger electron spectroscopy and ex situ X-ray photoelectron spectroscopy of each sample after each etching step confirmed that the surface is activated by chlorine and then the chlorine-containing iron species are removed from the top layer of the sample, resulting in a metallic iron surface. No etching of clean (sputtered) surface was observed with acacH. The complete mechanism of acacH reaction with chlorinated iron samples is complicated, and etch products can contain both Fe2+ and Fe3+. However, a number of major conclusions, including the formation of surface intermediates and the final products of etching, primarily removal of Fe(acac)xCly, are inferred by comparing the results of these experiments with the computational investigation of selected surface processes using density functional theory calculations.