The formed Fe oxides (minerals) in the magnetic biochar production process can facilitate its recovery and carbon retention rate. However, the influence of Fe oxides on pyrolysis volatile-derived water-soluble organic matter (PVWSOM, also called wood vinegar) has been largely overlooked. Results demonstrated that in-situ formed Fe oxides (α-Fe2O3 and Fe3O4) could obviously inhibit biomass cracking and accordingly reduce PVWSOM emissions, as indicated by decreased PVWSOM concentrations from 28.7 to 6.8 mg C/g biomass. FT-ICR MS results further indicated that Fe oxides suppressed the formation of large-molecular-weight PVWSOM compounds with high degree of unsaturation (DBE value > 5) and oxygen content (oxygen number > 5), leading to lower polarity and aromaticity. Therefore, the changes in PVWSOM molecular structures caused by Fe oxides relieved its toxicity on wheat seed growth, and reduced negative impact on soil microbial diversity and promoted soil bacterial Proteobacteria and Acidobacteria. These results indicate that molecular structures of PVWSOM from biomass pyrolysis also can be changed by Fe oxides to affect its application.