Albumin is a potent scavenger of reactive oxygen species (ROS). However, modifications in albumin structure may reduce its antioxidant properties and modulate its immune‐regulatory functions. We examined alterations in circulating albumin in severe alcoholic hepatitis (SAH) patients and their contribution to neutrophil activation, intracellular stress, and alteration in associated molecular pathways. Albumin modifications and plasma oxidative stress were assessed in SAH patients (n = 90), alcoholic cirrhosis patients (n = 60), and healthy controls (n = 30) using liquid chromatography/mass spectrometry and spectrophotometry. Activation and intracellular ROS were measured in healthy neutrophils after treatment with purified albumin from the study groups. Gene expression of SAH neutrophils was analyzed and compared to gene expression from healthy neutrophils after stimulation with purified albumin from SAH patient plasma. SAH‐albumin showed the highest albumin oxidative state (P < 0.05) and prominent alteration as human nonmercaptalbumin 2 (P < 0.05). Plasma oxidative stress (advanced oxidative protein product) was higher in SAH versus alcoholic cirrhosis patients and healthy controls (P < 0.05). Neutrophil gelatinase‐associated lipocalin, myeloperoxidase, and intracellular ROS levels were highest in SAH‐albumin‐treated neutrophils (P < 0.05). Genes associated with neutrophil activation, ROS production, intracellular antioxidation, and leukocyte migration plus genes for proinflammatory cytokines and various toll‐like receptors were overexpressed in SAH neutrophils compared to healthy neutrophils (P < 0.05). Expression of the above‐mentioned genes in SAH‐albumin‐stimulated healthy neutrophils was comparable with SAH patient neutrophils, except for genes associated with apoptosis, endoplasmic reticulum stress, and autophagy (P < 0.05). Conclusions: In patients with SAH, there is a significant increase in albumin oxidation, and albumin acts as a pro‐oxidant; this promotes oxidative stress and inflammation in SAH patients through activation of neutrophils. (Hepatology 2017;65:631‐646).