The development of semiconductors with narrow band gap and high stability is crucial for achieving solar to chemical energy conversion. Compounds with iodine, which has a high polarizability, have attracted attention because of their narrow band gap and long carrier lifetime, as typified by halide perovskite solar cells; however, they have been regarded as unsuitable for harsh photocatalytic water splitting because iodine is prone to self-oxidation. Here, we demonstrate that Ba2Bi3Nb2O11I, a layered Sillén-Aurivillius oxyiodide, not only has access to a wider range of visible light than its chloride and bromide counterparts, but also functions as a stable photocatalyst, efficiently oxidizing water. Density functional theory calculations reveal that the oxygen 2p orbitals in the perovskite block, rather than the fluorite Bi2O2 block as previously pointed out, anomalously push up the valence band maximum, which can be explained by a modified Madelung potential analysis that takes into account the high polarizability of iodine. In addition, the highly polarizable iodide contributes to longer carrier lifetime of Ba2Bi3Nb2O11I, allowing for a significantly higher quantum efficiency than its chloride and bromide counterparts. Visible-light-driven Z-scheme water splitting was achieved for the first time in an iodine-based system using Ba2Bi3Nb2O11I as an oxygen-evolution photocatalyst. The present study provides a novel approach for incorporating polarizable "soft" anions into building blocks of layered materials to manipulate the band structure and improve the carrier dynamics for visible-light responsive functions.