Many theoretical and experimental studies deal with the realization of room‐temperature ferromagnetism in dilute magnetic semiconductors (DMS). However, a detailed quantitative understanding of the electronic properties of transition metal doped semiconductors has often been neglected. This article points out which issues concerning electronic states and charge transfers need to be considered using Fe as an example. Methods to address these issues are outlined, and a wealth of data on the electronic properties of Fe doped III–V and II–VI compound semiconductors that have been obtained over a few decades is reviewed thoroughly. The review is complemented by new results on the effective‐mass‐like state consisting of a hole bound to Fe2+ forming a shallow acceptor state.The positions of established Fe3+/2+ and Fe2+/1+ charge transfer levels are summarized and predictions on the positions of further charge transfer levels are made based on the internal reference rule. The Fe3+/4+ level has not been identified unambiguously in any of the studied materials. Detailed term schemes of the observed charge states in tetrahedral and trigonal crystal field symmetry are presented including hyperfine structure, isotope effects and Jahn–Teller effect. Particularly, the radiative transitions Fe3+(4T1 → 6A1) and Fe2+(5E → 5T2) are analyzed in great detail.An effective‐mass‐like state [Fe2+, h] consisting of a hole bound to Fe2+ is of great significance for a potential realization of spin‐coupling in a DMS. New insights on this shallow acceptor state could be obtained by means of stress dependent and temperature dependent absorption experiments in the mK range. The binding energy and effective Bohr radius were determined for GaN, GaP, InP and GaAs and a weak exchange interaction between the hole and the Fe2+ center was detected.With regard to the Fe3+ ground state, 6A1, in GaP and InP, the hyperfine structure level Γ8 was found to be above the Γ8 level.All results are discussed with respect to a potential realization of a ferromagnetic spin‐coupling in DMSs. (© 2008 WILEY‐VCH Verlag GmbH & Co. KGaA, Weinheim)