Cobalt on carbon nanofiber model catalysts with very small dispersed cobalt particles of 5 nm were subjected to H2O/H-2 treatments at 20 bar and 220 degrees C. Using in situ Mossbauer spectroscopy we could unambiguously prove that oxidation of the nanoparticles by water will not occur when hydrogen is present. Only in a water/argon atmosphere did oxidation take place. This rules out oxidation as the deactivation mechanism in Fischer-Tropsch synthesis. Even more important, we define the relative humidity (RH) as a key parameter to understanding deactivation by water. At a RH below 25% sintering was absent even when measuring for 4 weeks, whereas at a high RH of 62% as much as half of the small super paramagnetic cobalt particles (<5 nm) sintered into larger particles in 1 week. Activity loss as measured at Fischer-Tropsch conditions amounted to 73%, which could be directly related to the metal dispersion loss 77% due to sintering as evidenced by detailed TEM analysis of the spent sample.