Fischer-Tropsch synthesis offers a promising route to convert carbon-rich resources such as coal, natural gas, and biomass into clean fuels and high-value chemicals via syngas. Catalyst development is crucial for optimizing the process, with cobalt- and iron-based catalysts being widely used in industrial applications. Iron-based catalysts, in particular, are favored due to their low cost, broad temperature range, and high water-gas shift reaction activity, making them ideal for syngas derived from coal and biomass with a low H2/CO ratio. However, despite their long history of industrial use, iron-based catalysts face two significant challenges. First, the presence of multiple iron phases-metallic iron, iron oxides, and iron carbides-complicates the understanding of the reaction mechanism due to dynamic phase transformations. Second, the high water-gas shift activity of these catalysts leads to increased CO2 selectivity, thereby reducing overall carbon efficiency. In Fischer-Tropsch synthesis, CO2 can arise as primary CO2 from CO disproportionation (the Boudouard reaction) and as secondary CO2 from the water-gas shift reaction. The accumulation of CO2 formation further compromises overall carbon efficiency, which is particularly undesirable given the current focus on minimizing carbon emissions and achieving carbon neutrality. This review focus on the ongoing advancements of iron-based catalysts for Fischer-Tropsch synthesis, with particular emphasis on overcoming these two critical challenges for iron-based catalysts: regulating the active phases and minimizing CO2 selectivity. Addressing these challenges is essential for enhancing the overall catalytic efficiency and selectivity of iron-based catalysts. In this review, recent efforts to suppress CO2 selectivity of iron-based catalysts, including catalyst hydrophobic modification and graphene confinement, are explored for their potential to stabilize active phases and prevent unwanted side reactions. This innovative approach offers new opportunities for developing catalysts with high activity, low CO2 selectivity, and enhanced stability, which are key factors for enhancing both the efficiency and sustainability for Fischer-Tropsch synthesis. Such advancements are crucial for advancing more efficient and sustainable Fischer-Tropsch synthesis technologies, supporting the global push for net-zero emissions goals, and contributing to carbon reduction efforts worldwide.