Arc discharge plasma (ADP) technology can be applied to disperse easily aggregated materials, such as the carbon nanotubes and Fe3O4. To investigate the evolution of the plasma arc channel and particle dispersion effect during the ADP process, a coupled electrode–plasma channel–workpiece (Fe3O4 clusters) and particle dispersion heat transfer model was established. The simulation results exhibited that the plasma arc formed at 0.05 s acted on the workpiece surface, forming a conical bottle-shaped structure with a wide arc column near the workpiece region and a narrow arc column near the electrode region due to the plasma column–workpiece interaction. With the continuous discharge, a discharge crater was formed on the workpiece surface due to the thermal-pressing effect of the plasma arc, and the dynamic pressure exerted by the arc column on the workpiece center increased continuously, driving the dispersion of the particles. In addition, ADP dispersion experiments were carried out on Fe3O4 to verify the simulation results. The experimental results showed that the morphologies of plasma arc channel evolution and discharge crater agreed with the simulation results. Moreover, the Fe3O4 particles dispersed by the ADP showed good dispersion morphology, which will further promote the spread of ADP technology in the dispersion and application of materials.