Sponge iron, also known as direct reduced iron (DRI), is a product of reducing iron oxide in the form of iron ore and steel plant wastes into metallic iron, below the melting point of iron. It is produced by directly changing iron ore to iron by a reducing gas or carbon, produced from natural gas or coal. Sponge iron is not useful by itself, but can be processed to create wrought iron or steel. The sponge is removed from the furnace, called a bloomery, and repeatedly beaten with heavy hammers and folded over to remove the slag, oxidize any carbon or carbide, and weld the iron together. This treatment usually creates wrought iron with about three percent slag and a fraction of a percent of other impurities.

Sponge iron is a raw material used in the production of steel and iron products. It is an energy-efficient feedstock for specialty steel manufacturers which used to rely upon scrap metal. Hydrogen-reduced iron is used as a source of food-grade iron powder, for food fortification and for oxygen scavenging.

The name "sponge iron" comes from the fact that iron oxide ores taken out from the Earth are allowed to absorb carbon by a reduction process. In this natural reduction, as the iron ore is warmed up with carbon, it results in a surface with hole marks, hence the name “Sponge Iron” .