The carbidization of Fe(0) nanoparticles (NPs) under syngas (CO/H2) produces crystalline Fe2.2C iron carbide NPs (ICNPs) displaying excellent hyperthermia properties, however, this transformation is significantly delayed by the concomitant water formation. Consequently, very long carbidization times (∼140 h) are needed to obtain ICNPs with high specific absorption rate. In this paper, we show that the rate of the carbidization process can be greatly enhanced by the in‐situ removal of water using activated molecular sieves. As a result, ICNPs displaying very high heating power were obtained after only 40 h. Using this strategy, CO was successfully replaced by CO2 as a carbon source in the carbidization process, resulting in the efficient conversion of Fe(0) NPs to ICNPs at relatively low temperature (230 °C). Without water removal, carbidization did not occur under these conditions, and the Fe(0) NPs were clearly oxidized. In addition, this approach was successfully applied to displace the equilibrium of CO2 hydrogenation and accelerate the rate of the magnetically induced hydrogenation of CO2 on ICNPs. Interestingly, the in‐situ water removal had also a strong influence on the product distribution and especially the chain growth process, leading to a higher selectivity towards the formation of C3H8 (∼11 %).