Cooling for these dryers comes from a closed cycle refrigeration system based on one of three commercial refrigerants, R-22, R-134a or R410a. The refrigeration systems used by these dryers are similar to domestic and commercial air conditioning systems. The image to the right shows a typical Freon-based refrigeration compressed air dryer.

Freon-based refrigeration compressed air dryers typically consist of a heat exchanger similar to the water cooled after the cooler. Instead of using water as the coolant, liquid CFC fills the heat exchanger shell. Liquid CFCs are kept under pressure that boils them to 3°C (38°F). After the CFC boils, the vapor is drawn into the compressor through a suction line, which compresses the CFC to high pressure and high temperature. The high pressure/high temperature CFC is cooled in a condenser and relaxed to a liquid state. The liquid is reintroduced into the heat exchanger through the metering device and forms a closed refrigeration cycle. As the compressed air passes through the heat exchanger, it is cooled to the temperature of the boiling CFC.

Variations of this basic design include units equipped with heat exchangers, designed to increase efficiency. In these cases, the cooled compressed air is reheated by the incoming air.

Refrigerated compressed air dryers typically have a residual oil content of 6 mg/m3. Refrigeration compressed air dryers with internal cold coalescing filters are rated for residual oil levels as low as 0.008 mg/m3, which is much lower than coalescing filters downstream of the air dryer because the cooled compressed air is reheated incoming air. Larger refrigerant dryers have an air-to-air heat exchanger between the incoming hot air and the cold outgoing air. Cold oil and water mist combine much better in the coalescing filter at cooler temperatures than the warmer oil and water vapor downstream of the cold air dryer air-to-air heat exchanger.