Legume nodules produce large quantities of heme required for the synthesis of leghemoglobin (Lb) and other hemoproteins. Despite the crucial function of Lb in nitrogen fixation and the toxicity of free heme, the mechanisms of heme homeostasis remain elusive. Biochemical, cellular, and genetic approaches were used to study the role of heme oxygenases (HOs) in heme degradation in the model legume Lotus japonicus. Heme and biliverdin were quantified and localized, HOs were characterized, and knockout LORE1 and CRISPR/Cas9 mutants for LjHO1 were generated and phenotyped. We show that LjHO1, but not the LjHO2 isoform, is responsible for heme catabolism in nodules and identify biliverdin as the in vivo product of the enzyme in senescing green nodules. Spatiotemporal expression analysis revealed that LjHO1 expression and biliverdin production are restricted to the plastids of uninfected interstitial cells. The nodules of ho1 mutants showed decreased nitrogen fixation, and the development of brown, rather than green, nodules during senescence. Increased superoxide production was observed in ho1 nodules, underscoring the importance of LjHO1 in antioxidant defense. We conclude that LjHO1 plays an essential role in degradation of Lb heme, uncovering a novel function of nodule plastids and uninfected interstitial cells in nitrogen fixation.