Catalytic treatment in water medium under high-pressure condition could be an attractive technology for clean upgrading of heavy crude oils and residua with effective heteroatom removal to meet the qualified liquid transportation fuels. By applying isotope labeling technique, an experimental study has been reported here to gain insights in the catalytic performance of iron/iron oxide nanocatalysts for upgrading vacuum residue (VR) in supercritical water (SCW) and formic acid (FA) solution. The results show that the hematite iron oxide nano particles with a higher oxidation state (Fe3+) are more effective in the oxidative removal of heteroatoms (sulfur, nitrogen) and in the reduction of heavy constituents (e.g., asphaltene) to light oil; while, magnetite (Fe3+/Fe2+) is superior in the hydrogenation of light hydrocarbons. Contrary to the upgrading in the steam atmosphere, SCW has strong influence on the recovery of converted iron oxide to the higher oxidation state (Fe2+ -> Fe3+), which can recompense the lattice oxygen loss of the catalyst during the cracking process. The advantage of heavy oil upgrading by using iron oxide nanoparticles in SCW + FA solution is that water pressure can enhance the capability of catalyst in providing the oxygen for the oxidative cracking as well as the effective hydrogenation of heavy oil by active hydrogen from the water-gas shift reaction.