An efficient catalytic process for converting methane into methanol could have far-reaching economic implications. Iron-containing zeolites (microporous aluminosilicate minerals) are noteworthy in this regard, having an outstanding ability to hydroxylate methane rapidly at room temperature to form methanol. Reactivity occurs at an extra-lattice active site called α-Fe(II), which is activated by nitrous oxide to form the reactive intermediate α-O; however, despite nearly three decades of research, the nature of the active site and the factors determining its exceptional reactivity are unclear. The main difficulty is that the reactive species—α-Fe(II) and α-O—are challenging to probe spectroscopically: data from bulk techniques such as X-ray absorption spectroscopy and magnetic susceptibility are complicated by contributions from inactive ‘spectator’ iron. Here we show that a site-selective spectroscopic method regularly used in bioinorganic chemistry can overcome this problem. Magnetic circular dichroism reveals α-Fe(II) to be a mononuclear, high-spin, square planar Fe(II) site, while the reactive intermediate, α-O, is a mononuclear, high-spin Fe(IV)=O species, whose exceptional reactivity derives from a constrained coordination geometry enforced by the zeolite lattice. These findings illustrate the value of our approach to exploring active sites in heterogeneous systems. The results also suggest that using matrix constraints to activate metal sites for function—producing what is known in the context of metalloenzymes as an ‘entatic’ state—might be a useful way to tune the activity of heterogeneous catalysts.