Blast furnaces operate on the principle of chemical reduction whereby carbon monoxide converts iron oxides to elemental iron.  Blast furnaces differ from bloomeries and reverberatory furnaces in that in a blast furnace, flue gas is in direct contact with the ore and iron, allowing carbon monoxide to diffuse into the ore and reduce the iron oxide. The blast furnace operates as a countercurrent exchange process whereas a bloomery does not. Another difference is that bloomeries operate as a batch process whereas blast furnaces operate continuously for long periods.  Continuous operation is also preferred because blast furnaces are difficult to start and stop. Also, the carbon in pig iron lowers the melting point below that of steel or pure iron; in contrast, iron does not melt in a bloomery.
Silica has to be removed from the pig iron. It reacts with calcium oxide (burned limestone) and forms silicates, which float to the surface of the molten pig iron as slag.  Historically, to prevent contamination from sulfur, the best quality iron was produced with charcoal.
The downward moving column of ore, flux, coke or charcoal and reaction products must be sufficiently porous for the flue gas to pass through.  To ensure this permeability the particle size of the coke or charcoal is of great relevance.   Therefore, the coke must be strong enough so it will not be crushed by the weight of the material above it. Besides the physical strength of its particles, the coke must also be low in sulfur, phosphorus, and ash.
The main chemical reaction producing the molten iron is:
:FeO + 3CO → 2Fe + 3CO
This reaction might be divided into multiple steps, with the first being that preheated air blown into the furnace reacts with the carbon in the form of coke to produce carbon monoxide and heat:
:2 C + O → 2 CO
The hot carbon monoxide is the reducing agent for the iron ore and reacts with the iron oxide to produce molten iron and carbon dioxide. Depending on the temperature in the different parts of the furnace (warmest at the bottom) the iron is reduced in several steps. At the top, where the temperature usually is in the range between 200 °C and 700 °C, the iron oxide is partially reduced to iron(II,III) oxide, FeO.
:3 FeO + CO → 2 FeO + CO
The temperatures 850 °C, further down in the furnace, the iron(II,III) is reduced further to iron(II) oxide:
:FeO + CO → 3 FeO + CO
Hot carbon dioxide, unreacted carbon monoxide, and nitrogen from the air pass up through the furnace as fresh feed material travels down into the reaction zone. As the material travels downward, the counter-current gases both preheat the feed charge and decompose the limestone to calcium oxide and carbon dioxide:
:CaCO → CaO + CO
The calcium oxide formed by decomposition reacts with various acidic impurities in the iron (notably silica), to form a fayalitic slag which is essentially calcium silicate, :
:SiO + CaO → CaSiO
As the iron(II) oxide moves down to the area with higher temperatures, ranging up to 1200 °C degrees, it is reduced further to iron metal:
:FeO + CO → Fe + CO
The carbon dioxide formed in this process is re-reduced to carbon monoxide by the coke:
:C + CO → 2 CO
The temperature-dependent equilibrium controlling the gas atmosphere in the furnace is called the Boudouard reaction:
::2CO  CO + C
The pig iron produced by the blast furnace has a relatively high carbon content of around 4–5% and usually contains too much sulphur, making it very brittle, and of limited immediate commercial use. Some pig iron is used to make cast iron. The majority of pig iron produced by blast furnaces undergoes further processing to reduce the carbon and sulphur content and produce various grades of steel used for construction materials, automobiles, ships and machinery. Desulphurisation usually takes place during the transport of the liquid steel to the steelworks. This is done by adding calcium oxide, which reacts with the iron sulfide contained in the pig iron to form calcium sulfide (called lime desulfurization). In a further process step, the so-called basic oxygen steelmaking, the carbon is oxidized by blowing oxygen onto the liquid pig iron to form crude steel.
Although the efficiency of blast furnaces is constantly evolving, the chemical process inside the blast furnace remains the same. One of the biggest drawbacks of the blast furnaces is the inevitable carbon dioxide production as iron is reduced from iron oxides by carbon and as of 2016, there is no economical substitute – steelmaking is one of the largest industrial contributors of the CO emissions in the world (see greenhouse gases). Several alternatives are being investigated such as plastic waste, biomass or hydrogen as reducing agent, which can substantially reduce the carbon emissions. The injection of, for example, hydrogen into blast furnaces can reduce carbon emissions by 20 percent.
The challenge set by the greenhouse gas emissions of the blast furnace is being addressed in an ongoing European Program called ULCOS (Ultra Low CO Steelmaking). Several new process routes have been proposed and investigated in depth to cut specific emissions ( per ton of steel) by at least 50%. Some rely on the capture and further storage (CCS) of , while others choose decarbonizing iron and steel production, by turning to hydrogen, electricity and biomass. In the nearer term, a technology that incorporates CCS into the blast furnace process itself and is called the Top-Gas Recycling Blast Furnace is under development, with a scale-up to a commercial size blast furnace under way.