Abstract Atomically dispersed and nitrogen coordinated iron catalysts (Fe‐NCs) demonstrate potential as alternatives to platinum‐group metal (PGM) catalysts in oxygen reduction reaction (ORR). However, in the context of practical proton exchange membrane fuel cell (PEMFC) applications, the membrane electrode assembly (MEA) performances of Fe‐NCs remain unsatisfactory. Herein, improved MEA performance is achieved by tuning the local environment of the Fe‐NC catalysts through defect engineering. Zeolitic imidazolate framework (ZIF)‐derived nitrogen‐doped carbon with additional CO 2 activation is employed to construct atomically dispersed iron sites with a controlled defect number. The Fe‐NC species with the optimal number of defect sites exhibit excellent ORR performance with a high half‐wave potential of 0.83 V in 0.5 M H 2 SO 4 . Variation in the number of defects allows for fine‐tuning of the reaction intermediate binding energies by changing the contribution of the Fe d‐orbitals, thereby optimizing the ORR activity. The MEA based on a defect‐engineered Fe‐NC catalyst is found to exhibit a remarkable peak power density of 1.1 W cm −2 in an H 2 /O 2 fuel cell, and 0.67 W cm −2 in an H 2 /air fuel cell, rendering it one of the most active atomically dispersed catalyst materials at the MEA level.