In-depth analysis of operando X-ray pair distribution function (PDF) data is combined with Li NMR spectroscopy to gain comprehensive insights into the electrochemical reaction mechanism of high-performance iron oxyfluoride electrodes. While the full discharge capacity could be recovered upon charge, implying reversibility of the electrochemical reaction, the atomic structure of the electrode formed after cycling (discharge-charge) differs from the pristine uncycled electrode material. Instead, the "active" electrode that forms upon cycling is a nanocomposite of an amorphous rutile phase and a nanoscale rock salt phase. Bond valence sum analysis, based on the precise structural parameters (bond lengths and coordination number) extracted from the in situ PDF data, suggests that anion partitioning occurs during the electrochemical reaction, with the rutile phase being F-rich and the rock salt phase being O-rich. The F- and O-rich phases react sequentially; Fe in a F-rich environment reacts preferentially during both discharge and charge.