The Fe single‐atom catalyst (SAC) with an oxidation state of III anchored on the N‐doped carbon substrate (Fe(III)‐N‐C) delivers superior activity for catalyzing the electrochemical CO2 reduction reaction (eCO2RR) to produce CO, but its mechanism remains contentious and the commonly adopted FeN4‐C model is not a conformant model for Fe(III)‐N‐C but for Fe(II)‐N‐C. Herein, employing the grand‐canonical ensemble modeling with the density functional theory method benchmarked against the high‐level wavefunction theory method, we first identify the conformant model for Fe(III)‐N‐C to be FeN1C3‐C, and we then unveil that the Fe(III)N1C3‐C SAC generates a novel type of dangling active site transiently under working conditions, in which the Fe single‐atom leaves from the anchoring site by breaking all the Fe‐C bonds but retains a stable binding to the substrate by the Fe‐N bond. Thus, we further elucidate that this flexible dangling active site of Fe(III)‐N‐C renders a convoluted reaction network with facile CO2 activation, which delivers superior activity for eCO2RR. Our findings provide a novel understanding of the structure‐activity relationship for Fe‐N‐C and concrete insights into the design of highly active SACs.