The present study aimed to investigate pulmonary function tests (PFTs) in children with thalassemia and to assess the relation between the degree respiratory impairment with the body iron status. High resolution computed tomography of chest (CHRCT) and bronchoalveolar lavage (BAL) was performed to study the cause of pulmonary dysfunction. Thirty-one children with thalassemia over 8 years were included. PFTs were studied including lung volumes and carbon monoxide diffusion capacity (DLco). Patients with abnormal PFTs and/or impaired DLco were further subjected to CHRCT and BAL. Total cell count was measured; differential count was performed on Giemsa and PAP smears. Iron laden macrophages were identified on Perl's stain. PFTs were normal in 51.61%, diffusion capacity impaired in 41.16%, restriction in 16.12%, while obstruction in 3.22% of cases, respectively. There was significant inverse correlation between DLco and serum ferritin. Through multivariate regression analysis, ferritin was found to be a strong predictor for forced vital capacity and total lung capacity. Bronchial dilatation and areas of air trapping were the predominant CHRCT findings. Iron laden macrophages were demonstrated in 14 of 15 patients in BAL. A significant correlation between serum ferritin and DLco, forced vital capacity, total lung capacity, and the presence of iron laden macrophages in BAL indicates that iron plays a major role in the etiopathogenesis of these abnormalities.