Infections with SARS-CoV-2 can result in severe clinical manifestations. As such patients present with systemic inflammation, we studied the prevalence and predictive value of anemia of inflammation (AI) or functional iron deficiency (FID), originating from immune-mediated alterations of iron homeostasis. Within this retrospective analysis of 259 hospitalized patients with COVID-19, we found that, upon admission, 24.7% were anemic, with the majority suffering from AI (68.8%). Anemia was associated with a significantly higher in-hospital mortality (OR 3.729 (95%CI 1.739–7.995), p = 0.001) but not an increased frequency of intensive care unit (ICU) admission or need for mechanical ventilation. FID was present in 80.0% of patients upon admission, linked to more advanced inflammation and associated with significantly longer hospital stay. Notably, a ferritin/transferrin ratio > 10 predicted a five-fold higher risk of ICU admission and an eight-fold higher risk of the need for mechanical ventilation. Anemia and alterations of iron homeostasis are highly prevalent in hospitalized COVID-19 patients. Iron metabolism biomarkers and hemoglobin can contribute to risk stratification of patients, as initial anemia is associated with increased mortality, whereas alterations of iron homeostasis with a higher ferritin/transferrin ratio reflect more advanced inflammation and predicts subsequent insufficient pulmonary oxygenation with the need for ICU admission and mechanical ventilation.