Gram-negative pneumonia is a dangerous illness, and bacterial dissemination to the bloodstream during the infection is strongly associated with death. Antibiotic resistance among the causative pathogens has resulted in diminishing treatment options against this infection. Hepcidin is the master regulator of extracellular iron availability in vertebrates, but its role in the context of host defense is undefined. We hypothesized that hepcidin-mediated depletion of extracellular iron during Gram-negative pneumonia protects the host by limiting dissemination of bacteria to the bloodstream. During experimental pneumonia, hepcidin was induced in the liver in an IL-6–dependent manner and mediated a rapid decline in plasma iron. In contrast, hepcidin-deficient mice developed a paradoxical increase in plasma iron during infection associated with profound susceptibility to bacteremia. Incubation of bacteria with iron-supplemented plasma enhanced bacterial growth in vitro, and systemic administration of iron to WT mice similarly promoted increased susceptibility to bloodstream infection. Finally, treatment with a hepcidin analogue restored hypoferremia in hepcidin-deficient hosts, mediated bacterial control, and improved outcomes. These data show hepcidin induction during pneumonia to be essential to preventing bacterial dissemination by limiting extracellular iron availability. Hepcidin agonists may represent an effective therapy for Gram-negative infections in patients with impaired hepcidin production or signaling.