Oxidative hydrolysis of elemental iron nanoclusters on hydroxylated surfaces such as silica or alumina is known to be influenced by the degree of hydration of the surface. The understanding and control of this process is crucial in the synthesis of iron oxide coated silica microspheres with a desired magnetic property. The hydrolysis of iron nanoparticles followed by heat treatment in the case of a hydrated microspherical silica surface results in the formation of maghemite (γ–Fe2O3), whereas a dehydrated surface yielded hematite (α–Fe2O3) nanoparticles. The influence of adsorbed water on the formation of intermediate iron oxides/oxidehydroxides and the mechanistic aspects of their subsequent thermal dehydration iron oxide phases were investigated by thermogravimetric analysis, Fourier transform infrared, and Mössbauer spectroscopies. The reactions on both the hydrated and the dehydrated surfaces were found to proceed through the formation of an x-ray amorphous lepidocrocite [γ–FeO(OH)] intermediate and its subsequent dehydration to maghemite (γ–Fe2O3). Maghemite to hematite transformation was readily facilitated only on a dry silica surface. The retardation of the lepidocrocite →maghemite →hematite transformation in the case of a hydrated silica surface is suggested to arise from strong hydrogen-bonded interactions between the substrate silica and the adsorbed nanoparticles.