In this study, waste polyethylene (PE) was gasified to produce alternative gas fuel using bauxite residue (BR) as an oxygen carrier in a two-stage reactor. PE was pyrolyzed in the first stage, and the volatiles were subsequently gasified with BR. The influences of temperature and mass ratio on the fuel gas composition were determined. The experimental results indicated that a higher temperature benefits gas production. The gas yield was 0.714 Nm3/kg at 850 °C, and the CH4 yield was 0.231 Nm3/kg. Increasing the BR mass ratio (Fe2O3 to fuel) could lead to over-oxidization (combustible gas production values were 0.531 Nm3/kg and 0.503 Nm3/kg at ratios of 1:2 and 1:4, respectively). Compared with the traditional oxygen carrier Fe2O3, BR showed a stronger oxygen release capability. The oxygen efficiency of BR was over 100% higher than that of Fe2O3. Moreover, the three-stage reactor improved the quality of gas (gas yield was 0.771 Nm3/kg and the production of H2, CH4, and CO accounted for 33.425%, 31.349%, and 19.186%, respectively) compared to the two-stage reactor. Furthermore, the Fe contained in the BR was reduced to Fe3O4, which might have contributed to the magnetic separation. Therefore, the results offer a promising method for the efficient utilization of waste plastic and BR.