The aim of this study was to characterize image quality and to determine the optimal strength levels of a novel iterative reconstruction algorithm (quantum iterative reconstruction, QIR) for low-dose, ultra-high-resolution (UHR) photon-counting detector CT (PCD-CT) of the lung. Images were acquired on a clinical dual-source PCD-CT in the UHR mode and reconstructed with a sharp lung reconstruction kernel at different strength levels of QIR (QIR-1 to QIR-4) and without QIR (QIR-off). Noise power spectrum (NPS) and target transfer function (TTF) were analyzed in a cylindrical phantom. 52 consecutive patients referred for low-dose UHR chest PCD-CT were included (CTDI _vol : 1 ± 0.6 mGy). Quantitative image quality analysis was performed computationally which included the calculation of the global noise index (GNI) and the global signal-to-noise ratio index (GSNRI). The mean attenuation of the lung parenchyma was measured. Two readers graded images qualitatively in terms of overall image quality, image sharpness, and subjective image noise using 5-point Likert scales. In the phantom, an increase in the QIR level slightly decreased spatial resolution and considerably decreased noise amplitude without affecting the frequency content. In patients, GNI decreased from QIR-off (202 ± 34 HU) to QIR-4 (106 ± 18 HU) (p < 0.001) by 48%. GSNRI increased from QIR-off (4.4 ± 0.8) to QIR-4 (8.2 ± 1.6) (p < 0.001) by 87%. Attenuation of lung parenchyma was highly comparable among reconstructions (QIR-off: -849 ± 53 HU to QIR-4: -853 ± 52 HU, p < 0.001). Subjective noise was best in QIR-4 (p < 0.001), while QIR-3 was best for sharpness and overall image quality (p < 0.001). Thus, our phantom and patient study indicates that QIR-3 provides the optimal iterative reconstruction level for low-dose, UHR PCD-CT of the lungs.