—In this paper we present a generalized joint channel and physical layer network coding scheme for two-way relay systems, where the two sources A and B desire to exchange information from each other through the relay R simultaneously. Physical network coding scheme allows the relay to decode the network-coded information of both sources from the superimposed received signal. A novel iterative decoding approach is developed for arbitrary linear channel code, e.g. Low-Density Parity-Check (LDPC) code. Simulation results show that the proposed scheme outperforms other recently proposed network coding schemes with slightly increased complexity.