We previously reported that the highly reactive cell-free heme (CFH) is increased in the plasma of patients with chronic lung injury and causes pulmonary edema in animal model of acute respiratory distress syndrome (ARDS) post inhalation of halogen gas. However, the mechanisms by which CFH causes pulmonary edema are unclear. Herein we report for the first time that CFH and chlorinated lipids (formed by the interaction of halogen gas, Cl2, with plasmalogens) are increased in the plasma of patients exposed to Cl2 gas. Ex vivo incubation of red blood cells (RBC) with halogenated lipids caused oxidative damage to RBC cytoskeletal protein spectrin, resulting in hemolysis and release of CFH. Patch clamp and short circuit current measurements revealed that CFH inhibited the activity of amiloride-sensitive epithelial Na+ channel (ENaC) and cation sodium (Na+) channels in mouse alveolar cells and trans-epithelial Na+ transport across human airway cells with EC50 of 125 nM and 500 nM, respectively. Molecular modeling identified 22 putative heme-docking sites on ENaC (energy of binding range: 86–1563 kJ/mol) with at least 2 sites within its narrow transmembrane pore, potentially capable of blocking Na+ transport across the channel. A single intramuscular injection of the heme-scavenging protein, hemopexin (4 μg/kg body weight), one hour post halogen gas exposure, decreased plasma CFH and improved lung ENaC activity in mice. In conclusion, results suggested that CFH mediated inhibition of ENaC activity may be responsible for pulmonary edema post inhalation injury.