The effect of water on the performance of potassium-promoted precipitated iron catalyst was investigated during Fischer–Tropsch synthesis (FTS) using a continuously stirred tank reactor (CSTR) at two different reaction temperatures. Water was added in such a manner as to replace an equivalent amount of inert gas so that all other reaction conditions (e.g., reactant partial pressure, space velocity) remained the same before, during, and after water addition. The externally added water had a positive effect on CO conversion at 270 °C whereas, for the reaction carried out at 230 °C, the added water decreased CO conversion and deactivated the catalyst. From these findings, the addition of water at 230 °C oxidized the catalyst, transforming the iron carbide to the Fe3O4 phase. When the reaction was carried out at 270 °C, severe oxidization did not take place and a carbide phase was retained. The loss in activity and the rate of deactivation were more pronounced at 230 °C compared to the 270 °C condition for the same catalyst. Mossbauer spectroscopic measurements revealed that for the reaction carried out at 230 °C, the catalyst had 85% of the iron present as Fe3O4 and the remaining as Hagg carbide (χ-Fe5C2), whereas at the higher temperature reaction condition the catalyst had about 66% of the iron present as έ-Fe2.2C, with the remaining as Fe3O4. These findings were also supported by XANES analysis, where a high white line intensity was observed for the sealed used catalyst sample for the low temperature reaction condition, indicating a higher extent of oxidation. A low white line intensity was recorded for the used sample for the high temperature reaction condition, indicative of a higher extent of reduction. The effect of water on the performance of potassium-promoted precipitated iron catalyst was investigated during Fischer–Tropsch synthesis (FTS) by using a continuously stirred tank reactor (CSTR) at two different reaction temperatures. In these studies, the added water replaced an equivalent amount of inert gas so that all other reaction conditions remained the same before, during, and after water addition. The externally added water had a positive effect on CO conversion at 270 °C whereas, for the reaction carried out at 230 °C, the added water decreased CO conversion and deactivated the catalyst. From these findings, the addition of water at 230 °C oxidized the catalyst, completely transforming the iron carbide to the Fe3O4 phase. When the reaction was carried out at 270 °C, oxidization did not take place and the carbide phase was retained. The loss in activity and the rate of deactivation were more pronounced at 230 °C compared to the 270 °C condition for the same catalyst. Mossbauer spectroscopic measurements and X-ray absorption near edge spectroscopy (XANES) studies further supported these findings.