The oxidation of iron in dry O2 and in wet O2 (40% H2O) has been studied at 600°C. The oxide microstructure was investigated by SEM/EDX, FIB and XRD. Iron forms a layered scale in dry and wet oxygen at 600°C. The scale consists of a top hematite layer, a middle magnetite layer and a wüstite layer close to the scale metal interface. All three layers grow with time, but with different growth rates, the overall growth being approximately parabolic. The presence of water vapour increases the rate of oxidation and affects the evolution of the oxide microstructure. The higher rate of oxidation in the presence of water vapour is due to an increased growth rate of the magnetite layer and, especially, of the hematite layer, while the growth of the wüstite layer is not affected. It is suggested that water vapour influences grain boundary transport in the hematite layer.