Electrochemical CO2 reduction reaction (CO2RR) is an attractive solution to close the anthropogenic carbon cycle and store intermittent renewable energy in value-added chemicals and fuels. While Fe nanoparticles are typically employed as catalysts for hydrogen evolution reaction (HER, a competing reaction against CO2RR), herein, efficient CO2 electroreduction is achieved through tuning their chemical microenvironment. Porous carbon layers were deposited on these Fe nanoparticles, which creates a hydrophobic environment to enrich local CO2 concentration and suppress water penetration and thus HER in the micropores. This strategy successfully turns Fe nanoparticles into an excellent CO2RR catalyst with over 90% CO Faradaic efficiency. Due to the unique local chemical environment created above, high CO selectivity could be maintained even in acidic electrolytes, which provides a promising approach to address the notorious issue of carbonate precipitation in widely used alkaline solutions for CO2 electrolyzers.