This study aimed to explore whether Fe2+ supplementation can improve the ability of grass carp to tolerate a high content of dietary cottonseed meal (CSM) and, if so, to uncover the potential regulation mechanism involved. Soybean and rapeseed meals were used as the main protein materials for the feed diet low in free gossypol (LFG) while CSM predominated in the diet high in free gossypol (HFG). In two other treatments, amounts of FeSO4•7H2O were supplemented in HFG diets to configure an HFG + Fe1 diet (containing supplementary 400 mg/kg of Fe2+) and an HFG + Fe2 diet (800 mg/kg of Fe2+). The experimental diets were randomly assigned to 12 cages, in triplicate, for an 8-week feeding trial. The results showed that fish fed the HFG diet had lower levels of PER (P < 0.05) than that fed the LFG diet. The greatest values for FBW, WGR, SGR, PER, and FCR were recorded in the HFG + Fe2 group, all differing significantly from the HFG group (P < 0.05). Meanwhile, the HFG + Fe2 diet conspicuously improved the lipid-deposition induced by HFG (P < 0.05). Fish fed the HFG diet showed lower levels of iron contents both in their blood (P > 0.05) and liver (P < 0.05) than did the LFG group, whereas the HFG + Fe2 diet increased them (P < 0.05) to maintain iron homeostasis by up-regulating hepcidin (P < 0.05) and down-regulating fpn1 mRNA (P < 0.05). The HFG + Fe2 diet also down-regulated the expression level of il-1β, and increased that of two anti-inflammatory cytokines, il-11 and tgf-β1, all of which differed significantly from those of the LFG group (P < 0.05). Compared with the LFG group, mRNA expression levels of jam-a and claudin-b in the HFG group were inhibited significantly (P < 0.05), but increasing the Fe2+ supplementation up-regulated expression levels of intestinal tight junctions, such as zo-1, zo-2, jam-a, occludin, claudin b, and claudin c. Altogether then, the inclusion of dietary Fe2+ supplementation (1–2:1 ratio of extra iron to free gossypol) augmented the tolerance to the high content of dietary CSM in grass carp by alleviating the intestinal inflammatory and restoring intestinal barrier function through iron homeostasis regulation.