Abstract Fe‐Mn based layered oxides are recognized as promising cathode materials for sodium‐ion batteries (SIBs) with high capacities and earth‐abundant ingredients. However, their real‐world applications are still constrained by fast capacity decay accompanied with the requirements of deeper insights into the principles behind. Herein, taking O3‐Na x Fe 1/2 Mn 1/2 O 2 as a classic sample, the capacity fading mechanism of Fe‐Mn based layered oxides is comprehensively investigated through combined techniques. For the first time, it is revealed that Fe migration is merely triggered after the oxidation of ≈0.3 mol Fe 3+ based on solid proofs from ex situ X‐ray absorption spectroscopy and Mössbauer spectroscopy, which implies the crucial role of the accumulated structural distortion induced by Jahn–Teller active Fe 4+ . O3‐P3 phase transition during cycling is obviously constrained along with Fe migration as evidenced by in situ / ex situ X‐ray diffraction, well interpreting the intensified polarization and the resulting large capacity loss. More importantly, within the desodiation depth (≈80% of sodium extraction) where Fe migration is almost absent, the capacity fading is dominantly rooted in the Fe 4+ activated and Mn‐dissolution aggravated surface passivation as confirmed by mass/X‐ray spectroscopies and electrochemical analysis. These renewed understandings of the fast capacity decay in Fe‐Mn based layered oxides offer clearer clues for designing desirable cathodes for SIBs.