Biomass chemical looping gasification (CLG) is a novel gasification technology for hydrogen production, where the oxygen carrier (OC) transfers lattice oxygen to catalytically oxidize fuel into syngas. However, the OC is gradually reduced, showing different reaction activities in the CLG process. Fully understanding the CLG reaction mechanism of fuel molecules on perfect and reduced OC surfaces is necessary, for which the CLG of ethanol using Fe2O3 as the OC was introduced as the probe reaction to perform density functional theory calculations to reveal the decomposition mechanism of ethanol into the synthesis gas (including H2, CH4, ethylene, formaldehyde, acetaldehyde, and CO) on perfect and reduced Fe2O3(001) surfaces. When Fe2O3(001) is reduced to FeO0.375(001), the calculated barrier energy decreases and then increases again, suggesting that the reduction state around FeO(001) favors the catalytic decomposition of ethanol to produce hydrogen, which proves that the degree of reduction has an important effect on the CLG reaction.