Molybdenum supported on zeolite HZSM-5 (Mo/HZSM-5) is the most studied catalyst for methane dehydroaromatization (MDA). However, the nature of its catalytic active sites and their deactivation mechanisms remain unclear and controversial. Here we report new insights into this system, on the basis of advanced characterization and a rational design of experiments. We find that it is the size of the HZSM-5 crystal that determines the form and location of the catalytic active molybdenum carbide (MoCx) species, and thus the performance of Mo/HZSM-5; we also find that MoCx sites are preferentially deactivated over acid sites, when supported on nano-sized HZSM-5. These findings lead us to develop an “encapsulation” strategy, which effectively reconciles the deactivation rates at the MoCx sites and the acid sites, enabling a full utilization of both sites, and consequently leading to a 10-fold increase in catalyst lifetime and aromatics yield. Our results indicate that MoCx particles formed outside the micropores of HZSM-5, which are traditionally considered detrimental to the reaction, can serve as active sites for MDA, provided that they are properly protected from direct exposure to coke deposition. These findings allow us to design control experiments to answer an open question whether the acid sites, in addition to promoting the dispersion of Mo species, play a catalytic role in the MDA reaction, and the results show that acid sites are indeed essential for the conversion of methane.