Low-temperature reaction of A-site-ordered layered perovskite Eu2SrFe2O7 (T structure) with CaH2 induces a shift in the Eu2O2 slabs to form Eu2SrFe2O6 with a T' structure (I4/mmm space group) in which only the Fe cation is reduced. Contrary to the previously reported T' structures with Jahn-Teller-active d(9) cations (Cu2+ and Ni+), stabilization of Eu2SrFe2O6 with the Fe2+ (d(6)) cation reflects the stability of the FeO4 square-planar unit. The stability of T'-type Eu2SrFe2O6 over a T-type polymorph is confirmed by density functional theory calculations, revealing the dz(2) occupancy for the T' structure. Eu2SrFe2O6 has a bilayer magnetic framework with an FeOFe superexchange J(parallel to) and an Fe-Fe direct exchange J(parallel to) (where J(parallel to) > J(perpendicular to)), which broadly explains the observed T-N of 390404 K. Interestingly, the magnetic moments of Eu2SrFe2O6 lie in the ab plane, in contrast to the structurally similar Sr3Fe2O4Cl2 having an out-of-plane spin alignment.