In order to identify the influences imposed by Fe substitution, density functional theory-based Car-Parrinello molecular dynamics simulations were employed to study both oxidized and reduced Fe-bearing smectites. The following basic properties were investigated: local structures in the clay layer, hydroxyl orientations, and the vibration dynamics of H and Si. Structural analyses indicated that the average Fe–O bond lengths are ~2.08 Å and 2.02 Å in the reduced and oxidized models, respectively, and the Fe substitutions did not affect the coordination structures of the Al–O and Si–O polyhedra. For hydroxyl orientations, Fe(III) substitution had no obvious influence but Fe(II) forces the coordinated hydroxyls to present a wide-angle distribution. Furthermore, the present work has shown that both substitutions can red-shift the hydroxyl in-plane bending mode. The analyses also revealed that Fe(III) substitution has no effect on the Si–O stretching, while Fe reduction causes a blue-shift of the out-of-plane stretching mode. The results provide quantitative constraints and clues for future research.