Discomfort caused by inflammation leads to stress and anxiety in patients and seriously decreases the patients' quality of life. People prefer to use natural products instead of anti-inflammatory drugs because of their low toxicity and side effects. Studies have shown that Sphagnum palustre L. (S. palustre) can be used as medicinal plant, but few studies have focused on its anti-inflammatory effects. This study explored the mechanism of action of the ethanol extract of the peat moss plant S. palustre on lipopolysaccharide-induced inflammation in macrophage RAW264.7 cells. Components in S. palustre ethanol extracts (SPE) were identified by HPLC-MS, which mainly included 4-methoxybenzaldehyde, 4-methoxycinnamaldehyde and oleanolic acid. The effects of different concentrations (6.25–100 μg/mL) of SPE after 24 h administration were evaluated to establish a cellular inflammation model. Three biological replicates were performed based on each experiment, the MTT assay results showed that a low concentration of SPE promoted cell proliferation marked by Formazan. In a neutral red uptake assay, the SPE group was effectively inhibited the cell phagocytosis rate. With the increase of SPE concentration, intracellular ROS release decreased, which detected by DCFH-DA. Immunofluorescence assay result showed that SPE inhibited the release of reactive oxygen species from macrophages with fluorescent markers and DAPI. SPE inhibited the release of nitric oxide from macrophages as well. What's more, SPE significantly decreased the protein expression of interleukin (IL)-1, IL-6, and nuclear factor (NF)-κB according to enzyme-linked immunosorbent and immunocytochemical assays. SPE reduces inflammation in macrophage RAW264.7 cells and thus is a promising natural anti-inflammatory plant.