Sustainable production of acetic acid is a high priority due to its high global manufacturing capacity and numerous applications. Currently, it is predominantly synthesized via carbonylation of methanol, in which both the reactants are fossil-derived. Carbon dioxide transformation into acetic acid is highly desirable to achieve net zero carbon emissions, but significant challenges remain to achieve this efficiently. Herein, we report a heterogeneous catalyst, thermally transformed MIL-88B with Fe0and Fe3O4dual active sites, for highly selective acetic acid formation via methanol hydrocarboxylation. ReaxFF molecular simulation, and X-ray characterisation results show a thermally transformed MIL-88B catalyst consisting of highly dispersed Fe0/Fe(II)-oxide nanoparticles in a carbonaceous matrix. This efficient catalyst showed a high acetic acid yield (590.1 mmol/gcat.L) with 81.7% selectivity at 150 °C in the aqueous phase using LiI as a co-catalyst. Here we present a plausible reaction pathway for acetic acid formation reaction via a formic acid intermediate. No significant difference in acetic acid yield and selectivity were noticed during the catalyst recycling study up to five cycles. This work is scalable and industrially relevant for carbon dioxide utilisation to reduce carbon emissions, especially when green methanol and green hydrogen are readily available in future.