(1) Background/Objectives: Dexmedetomidine is a sedative for patients receiving invasive mechanical ventilation (IMV) that previous single-site studies have found to be associated with improved survival in patients with COVID-19. The reported clinical benefits include dampened inflammatory response, reduced respiratory depression, reduced agitation and delirium, improved preservation of responsiveness and arousability, and improved hypoxic pulmonary vasoconstriction and ventilation-perfusion ratio. Whether improved mortality is evident in large, multi-site COVID-19 data is understudied. (2) Methods: The association between dexmedetomidine use and mortality in patients with COVID-19 receiving IMV was assessed. This retrospective multi-center cohort study utilized patient data in the United States from health systems participating in the National COVID Cohort Collaborative (N3C) from 1 January 2020 to 3 November 2022. The primary outcome was 28-day mortality rate from the initiation of IMV. Propensity score matching adjusted for differences between the group with and without dexmedetomidine use. Adjusted hazard ratios (aHRs) for 28-day mortality were calculated using multivariable Cox proportional hazards models with dexmedetomidine use as a time-varying covariate. (3) Results: Among the 16,357,749 patients screened, 3806 patients across 17 health systems met the study criteria. Mortality was lower with dexmedetomidine use (aHR, 0.81; 95% CI, 0.73–0.90; p < 0.001). On subgroup analysis, mortality was lower with earlier dexmedetomidine use—initiated within the median of 3.5 days from the start of IMV—(aHR, 0.67; 95% CI, 0.60–0.76; p < 0.001) as well as use prior to standard, widespread use of dexamethasone for patients on respiratory support (prior to 30 July 2020) (aHR, 0.54; 95% CI, 0.42–0.69; p < 0.001). In a secondary model that was restricted to 576 patients across six health system sites with available PaO2/FiO2 data, mortality was not lower with dexmedetomidine use (aHR 0.95, 95% CI, 0.72–1.25; p = 0.73); however, on subgroup analysis, mortality was lower with dexmedetomidine use initiated earlier than the median dexmedetomidine start time after IMV (aHR, 0.72; 95% CI, 0.53–0.98; p = 0.04) and use prior to 30 July 2020 (aHR, 0.22; 95% CI, 0.06–0.78; p = 0.02). (4) Conclusions: Dexmedetomidine use was associated with reduced mortality in patients with COVID-19 receiving IMV, particularly when initiated earlier, rather than later, during the course of IMV as well as use prior to the standard, widespread usage of dexamethasone during respiratory support. These particular findings might suggest that the associated mortality benefit with dexmedetomidine use is tied to immunomodulation. However, further research including a large randomized controlled trial is warranted to evaluate the potential mortality benefit of DEX use in COVID-19 and evaluate the physiologic changes influenced by DEX that may enhance survival.