This study aims to investigate the effects and mechanisms of the effective-compounds of Jinshui Huanxian formula (ECC-JHF) in improving pulmonary fibrosis. Animal experiments were approved by the Ethics Committee of the Animal Experiment Center of Henan University of Chinese Medicine (approval number: IACUC-202306012). The mouse model of pulmonary fibrosis was induced using bleomycin (BLM). Hematoxylin-eosin (H&E) staining was used to detect the histopathological changes of lung tissues. Masson staining was used to assess the degree of fibrosis in lung tissues. Immunofluorescence (IF) and real-time quantitative PCR (qPCR) were performed to measure the expression of collagen type I (COL I), α-smooth muscle actin (α-SMA), fibronectin (FN), interleukin (IL)-1β, IL-6, and tumor necrosis factor α (TNF-α) in lung tissues. Flow cytometry (FCM) was employed to detect the proportion of M1 and M2 macrophages in the bronchoalveolar lavage fluid (BALF) of mice. IF and qPCR were also used to detect the expression of lipase family member N (LIPN) in lung tissues. Free fatty acid assay kit was used to detect the level of free fatty acids in lung tissue. Bone marrow-derived macrophages (BMDMs) were treated with interleukin-4 (IL-4) to induce M2 polarization. FCM was used to measure the proportion of CD206⁺ M2 macrophages. IF was utilized to detect LIPN expression and lipid droplet decomposition. The results showed that in BLM-induced pulmonary fibrosis mice, ECC-JHF significantly attenuated BLM-induced alveolar inflammation and collagen deposition, inhibited fibroblast activation in lung tissues, and decreased the proportion of M2 macrophages in BALF. It also significantly suppressed LIPN expression and free fatty acid level in lung tissues. In the IL-4 induced BMDMs M2 polarization model, ECC-JHF significantly inhibited the proportion of CD206⁺ M2 macrophages, down-regulated the expression of LIPN, and blocked lipid droplet catabolism. These results suggest that ECC-JHF may alleviate bleomycin-induced pulmonary fibrosis by inhibiting lipid droplet decomposition and M2 macrophage polarization.