Iron‐rich particles are widespread on the surfaces and interiors of lunar impact glasses, and they record delicate physicochemical processes during space weathering and regolith gardening on the Moon. Different from nanophase iron in amorphous rims of regolith minerals, iron‐rich particles in lunar impact glasses are mostly larger than 10 nm and are spherical and semi‐hemispherical in shape. In regolith samples returned by Luna, Apollo and Chang'E‐5 missions, a special form of microscopic iron‐rich structure commonly exists on surfaces of impact glasses, which appear as rimless depressions that are filled with nano‐sized grains. Termed grain‐decorated iron‐rich depressions, their possible origin is elusive. Here we perform detailed observations of the morphology, composition and crystallography of these microstructures, showing that they are not degassing pits that were later filled with nano‐sized grains as has been previously considered. They are hemispherical integrated compounds of α‐Fe and troilite that have variable area proportion. The surface grains are dominated by α‐Fe, which mainly develop on top of vesiculated surfaces of the underlying troilite. The α‐Fe grains are mainly formed by desulphurization of troilite due to radiation and heating. While iron‐rich grain‐decorated depressions have larger diameters and different surface morphologies compared to other iron‐rich microstructures in lunar impact glasses, their identical occurrences and phase components (α‐Fe and troilite) suggest a common origin caused by liquid immiscibility between Fe‐S melt and silicate melt. Their diverse surface morphology is mainly caused by heterogeneous S contents and local ratios of Fe and S in silicate impact melt.