A liposomal hydrogel with 3% povidone-iodine (PVP-ILH, Repithel) has shown clinical benefit in settings where inflammation and/or reactive oxygen species are thought to impede wound healing (e.g., burns, chronic wounds and in smokers). This in vitro study investigated whether PVP-ILH is able to reduce inflammatory events responsible for the impairment of the wound healing process in such patients. Therefore, the following assays were conducted with PVP-ILH (and derived control hydrogels to identify the component responsible for the effect): inhibition of reactive oxygen species production by human polymorphonuclear neutrophils (PMNs) and in a cell-free system, oxygen consumption assay of PMNs (prior to oxidative burst), inhibition of human complement (limiting the generation of complement factors), mast cell degranulation, nitric oxide production by murine macrophages and TNF-alpha production by human monocytes/macrophages. Where toxicity could cause cell inhibition, cell viability was assessed. PVP-ILH and its components interacted in our series of bioassays at various stages in the inflammation cascade. Scavenging of superoxide anions was the most pronounced effect. Furthermore, povidone-iodine inhibited PMN production of reactive oxygen species (inhibition of oxygen consumption) and a mast cell inhibitory (stabilising) activity was observed. Based on these results, the clinically observed, beneficial wound healing effects of PVP-ILH may also be attributed to an impediment of inflammatory activity, mainly by iodine's free radical scavenging. Controlling oxidative stress in the wound may be of great importance, especially since further reactions as, e.g., the formation of peroxynitrite from NO and ROS are prevented.