Protein phosphatase‐1 ( PP 1) drives a large amount of phosphoSer/Thr protein dephosphorylations in eukaryotes to counteract multiple kinases in signaling pathways. The phosphatase requires divalent metal cations for catalytic activity and contains iron naturally. Iron has been suggested to have an influence on PP 1 activity through Fe ²⁺ and Fe ³⁺ oxidation states. However, much biochemical and all structural data have been obtained with recombinant PP 1 containing Mn ²⁺ ions. Purifying iron‐containing PP 1 from Escherichia coli has thus far not been possible. Here, we present the preparation, characterization, and structure of iron‐bound PP 1α in inactive and active states. We establish a key role for the electronic/redox properties of iron in PP 1 activity and shed light on the difference in substrate specificity between iron‐ and manganese‐containing PP 1.