Activation of Fe2O3-Al2O3 with CH4 (instead of H2) is a meaningful method to achieve catalytic methane decomposition (CMD). This reaction of CMD is more economic and simple against commercial methane steam reforming (MSR) as it produces COx-free H2. In this study, for the first time, structure changes of the catalyst were screened during CH4 reduction with time on stream. The aim was to optimize the pretreatment conditions through understanding the activation mechanism. Based on results from various characterization techniques, reduction of Fe2O3 by CH4 proceeds in three steps: Fe2O3→Fe3O4→FeO→Fe0. Once Fe0 is formed, it decomposes CH4 with formation of Fe3C, which is the crucial initiation step in the CMD process to initiate formation of multiwall carbon nanotubes. © 2016 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim.