Measurements of Fe oxyhydroxides [reactive Fe(III)] in two shallow sediment profiles from reducing and oxic environments on the Arabian Sea margin demonstrate Fe isotope fractionation during early marine diagenesis. Reactive Fe(III) has delta Fe-56 values between -0.77 parts per thousand and -0.19 parts per thousand. Values are lowest at the top of the sediment profile and considerably lower than bulk sediment Fe (delta Fe-56 approximate to 0%). Preferential reduction and dissolution of light Fe isotopes during diagenesis leaves behind an increasingly smaller and heavier reactive Fe(III) residual. Initially, the isotopic composition of reactive Fe(III) evolves down-core according to the fractionation factor typical of microbial dissimilatory Fe reduction. Deeper in the profile, delta Fe-56 values remain unchanged despite further Fe reduction. Here, another process with a different fractionation factor becomes dominant, probably reduction by dissolved sulfide. The delta Fe-56 of the residual reactive Fe(III) suggests that similar to 25% of the initially present reactive Fe(III) was reduced by microbial Fe reduction. When Fe is diagenetically recycled between reducing sediments at depth and an oxic top layer, the process, depending on recycling efficiency, may result in the accumulation of light Fe in the top layer while the complementary heavier residual is buried. Fe diffusing from the seafloor back into the ocean should reflect the low-delta Fe-56 diagenetic source of dissolved Fe.