First-principles electronic structure calculations, fully incorporating the effects of spin polarization and noncollinear magnetic moments, have been used to investigate CO disproportionation on an isolated Fe cluster. After CO dissociation, which occurs on a vertex between the facets, O atoms remain on the surface while C atoms move into the cluster as the initial step toward carbide formation. The lowest CO dissociation barrier found (0.77 eV) is lower than that on most of the studied Fe surfaces. Several possible paths for CO2 formation were identified. The lowest reaction barrier was 1.08 eV.