The conversion from syngas derived from non-petroleum recourses to liquid fuels and chemicals via Fischer–Tropsch synthesis (FTS) is regarded as an alternative and potential route. Developing catalyst with controllable particle size and clarifying size effect are of significance to promote the process. Herein, we engineered carbon-encapsulation structure to restrict particle growth but avoid strong metal–support interactions. The prepared carbon-encapsulated nanoparticles (Fe@C) showed a superior catalytic activity compared with conventional carbon-supported nanoparticles (Fe/C). By tuning particle size from 3.0 to 9.1 nm, a volcano-like trend of iron time yield (FTY) peaked at 2659 μmol·g_Fe⁻¹·s⁻¹ is obtained with an optimum particle size of 5.3 nm. According to temperature-programmed reduction and desorption results, a linear relationship between apparent turnover frequency and CO dissociation capacity was established. The enhanced CO dissociative adsorption along with weakened H₂ activation on larger nanoparticles resulted in higher C₅₊ selectivity. This study provides a strategy to synthesize carbon supported metal catalysts with controllable particle size and insight into size effect on Fe-based catalytic FTS.