Although critical for host defense, innate immune cells are also pathologic drivers of acute respiratory distress syndrome (ARDS). Innate immune dynamics during Coronavirus Disease 2019 (COVID-19) ARDS, compared to ARDS from other respiratory pathogens, is unclear. Moreover, mechanisms underlying the beneficial effects of dexamethasone during severe COVID-19 remain elusive. Using single-cell RNA sequencing and plasma proteomics, we discovered that, compared to bacterial ARDS, COVID-19 was associated with expansion of distinct neutrophil states characterized by interferon (IFN) and prostaglandin signaling. Dexamethasone during severe COVID-19 affected circulating neutrophils, altered IFN neutrophils, downregulated interferon-stimulated genes and activated IL-1R2 neutrophils. Dexamethasone also expanded immunosuppressive immature neutrophils and remodeled cellular interactions by changing neutrophils from information receivers into information providers. Male patients had higher proportions of IFN neutrophils and preferential steroid-induced immature neutrophil expansion, potentially affecting outcomes. Our single-cell atlas (see 'Data availability' section) defines COVID-19-enriched neutrophil states and molecular mechanisms of dexamethasone action to develop targeted immunotherapies for severe COVID-19.