Physical layer network coding (PNC) is a promising technique to improve the network throughput in a two-way relay (TWR) channel for two users to exchange messages across a wireless network. The PNC technique incorporating a TWR channel is embraced by a free space optical (FSO) communication link for full utilization of network resources, namely TWR-FSO PNC. In this paper, bit interleaved coded modulation with iterative decoding (BICM-ID) is adopted to combat the deleterious effect of the turbulence channel by saving the message being transmitted to increase the reliability of the system. Moreover, based on this technique, comparative studies between end-to-end BICM-ID code, non-iterative convolutional coded and uncoded systems are carried out. Furthermore, this paper presents the extrinsic information transfer (ExIT) charts to evaluate the performance of BICM-ID code combined with the TWR-FSO PNC system. The simulation results show that the proposed scheme can achieve a significant bit error rate (BER) performance improvement through the introduction of an iterative process between a soft demapper and decoder. Similarly, Monte Carlo simulation results are provided to support the findings. Subsequently, the ExIT functions of the two receiver components are thoroughly analysed for a variety of parameters under the influence of a turbulence-induced channel fading, demonstrating the convergence behaviour of BICM-ID to enable the TWR-FSO PNC system, effectively mitigating the impact of the fading turbulence channel.