High‐energy‐density and low‐cost lithium‐ion batteries are sought to meet increasing demand for portable electronics. In this study, a cobalt‐free Li(Li0.17Ni0.17Fe0.17Mn0.49)O2 (LNFMO) cathode material is chosen, owing to the reversible anionic redox couple O2−/O−. The aim is to elucidate the Fe‐substitution function and oxygen redox mechanism of experimentally synthesized Li(Li0.16Ni0.19Fe0.18Mn0.46)O2 by DFT. The redox processes of cobalt‐containing Li(Li0.17Ni0.17Co0.17Mn0.49)O2 (LNCMO) are compared with those of LNFMO. Redox couples including Ni2+/Ni3+/Ni4+, Fe3+/Fe4+ or Co3+/Co4+, and O2−/O− are found, confirmed by a X‐ray photoelectron spectroscopy, and explained by redox competition between O and transition metals. In LNFMO and LNCMO, O ions with an Li‐O‐Li configuration readily participate in oxidation, and the most active O ions are coordinated to Mn4+ and Li+. Oxidation of O in LNCMO is triggered earlier, along with that of Co. Fe substitution activates O ions, contributes additional oxygen redox charge compensation of 0.44 e per formula unit, avoids concentrated accumulation of oxygen oxidation, and improves structural stability. This work provides new scope for designing cobalt‐free, low‐cost, and higher‐energy‐density cathode materials for Li‐ion batteries.