We report herein a comprehensive study of the gas-phase Fe+-mediated oxidation of ethane by N2O on both the sextet and quartet potential energy surfaces (PESs) using density functional theory. The geometries and energies of all the relevant stationary points are located. Initial oxygen-atom transfer from N2O to iron yields FeO+. Then, ethane oxidation by the nascent oxide involves C–H activation forming the key intermediate of (C2H5)Fe+(OH), which can either undergo C–O coupling to Fe+ + ethanol or experience β-H shift giving the energetically favorable product of FeC2H4+ + H2O. Reaction of FeC2H4+ with another N2O constitutes the third step of the oxidation. N2O coordinates to FeC2H4+ and gets activated by the metal ion to yield (C2H4)Fe+O(N2). After releasing N2 through the direct H abstraction and/or cyclization pathways, the system would be oxidized to ethenol, acetaldehyde, and oxirane, regenerating Fe+. Oxidation to acetaldehyde along the cyclization –C–to–C hydrogen shift pathway is the most energetically favored channel.