Purpose:To significantly improve dual energy CT (DECT) imaging by establishing a new theoretical framework of image‐domain material decomposition with incorporation of edge‐preserving techniques.Methods:The proposed algorithm, HYPR‐NLM, combines the edge‐preserving non‐local mean filter (NLM) with the HYPR‐LR (Local HighlY constrained backPRojection Reconstruction) framework. Image denoising using HYPR‐LR framework depends on the noise level of the composite image which is the average of the different energy images. For DECT, the composite image is the average of high‐ and low‐energy images. To further reduce noise, one may want to increase the window size of the filter of the HYPR‐LR, leading resolution degradation. By incorporating the NLM filtering and the HYPR‐LR framework, HYPR‐NLM reduces the boost material decomposition noise using energy information redundancies as well as the non‐local mean. We demonstrate the noise reduction and resolution preservation of the algorithm with both iodine concentration numerical phantom and clinical patient data by comparing the HYPR‐NLM algorithm to the direct matrix inversion, HYPR‐LR and iterative image‐domain material decomposition (Iter‐DECT).Results:The results show iterative material decomposition method reduces noise to the lowest level and provides improved DECT images. HYPR‐NLM significantly reduces noise while preserving the accuracy of quantitative measurement and resolution. For the iodine concentration numerical phantom, the averaged noise levels are about 2.0, 0.7, 0.2 and 0.4 for direct inversion, HYPR‐LR, Iter‐ DECT and HYPR‐NLM, respectively. For the patient data, the noise levels of the water images are about 0.36, 0.16, 0.12 and 0.13 for direct inversion, HYPR‐LR, Iter‐DECT and HYPR‐NLM, respectively. Difference images of both HYPR‐LR and Iter‐DECT show edge effect, while no significant edge effect is shown for HYPR‐NLM, suggesting spatial resolution is well preserved for HYPR‐NLM.Conclusion:HYPR‐NLM provides an effective way to reduce the generic magnified image noise of dual–energy material decomposition while preserving resolution.This work is supported in part by NIH grants 7R01HL111141 and 1R01‐EB016777. This work is also supported by the Natural Science Foundation of China (NSFC Grant No. 81201091), Fundamental Research Funds for the Central Universities in China, and Fund Project for Excellent Abroad Scholar Personnel in Science and Technology.