Adverse sensory changes prevent the addition of highly bioavailable ferrous sulfate (FeSO4) to most wheat flours. Poorly absorbable reduced Fe powders are commonly used. Encapsulation of FeSO4 can overcome these sensory changes, but the particle size of commercial compounds is too large to be used by flour mills. The first objective of the study was to measure the efficacy in wheat flour of two newly developed Fe compounds, an H-reduced Fe powder (NutraFine™ RS; North America Höganäs High Alloys LLC, Johnstown, PA, USA) and small particle-sized (40 μm) encapsulated FeSO4. As a second objective, the microcapsules were evaluated as a vehicle for iodine fortification. A randomised, double-blind controlled intervention trial was conducted in Kuwaiti women (n 279; aged 18–35 years) with low body Fe stores (serum ferritin (SF) < 25 μg/l) randomly assigned to one of three groups (20 mg Fe as NutraFine™ RS, 10 mg Fe as encapsulated FeSO4 and 150 μg iodine, or no fortification Fe) who consumed wheat-based biscuits 5 d per week. At baseline and 22 weeks, Hb, SF, transferrin receptor, urinary iodine and body Fe stores were measured. Relative to control, mean SF in the encapsulated FeSO4 group increased by 88 % (P < 0·001) and body Fe stores increased from − 0·96 to 2·24 mg/kg body weight (P < 0·001), while NutraFine™ RS did not significantly increase SF or body Fe stores. The median urinary iodine concentration increased from 140 to 213 μg/l (P < 0·01). NutraFine™ RS added at double the amount of Fe as FeSO4 was not efficacious in improving Fe status. The newly developed microcapsules were highly efficacious in improving both Fe stores and iodine status.