The recovery and regeneration of FePO4 from lithium extraction slag (LES) are crucial steps in the closed-loop recycling of waste LiFePO4 batteries. This necessity arises despite the low commercial value of LES, as conventional recovery methods are cost-prohibitive, leading to insufficient attention to LES recovery. The recent surge in retired batteries has resulted in a significant accumulation of LES, posing serious environmental concerns, however, the high content of Fe and P resources in LES presents a potential value. The study begins with a theoretical analysis, concluding that the reduction leaching of LES is a feasible approach. By integrating this with the Fe powder synthesis route for FePO4, it is found that efficient leaching of LES can be achieved using a low concentration of H2SO4, thereby significantly reducing the recovery cost. This method not only efficiently utilize LES but also alleviates environmental pressure. The thermodynamic analysis sheds light on the mechanism of LES leaching and FePO4 synthesis, confirming the feasibility of each reaction. Optimal leaching conditions (1.4 times the stoichiometric amount of H2SO4, 1.5 times the amount of Fe powder, an L/S ratio of 5 mL/g, and a reaction duration of 150 min at 60 °C), under which the leaching rates of Fe and P reached 94.66% and 98.23%, respectively. Additionally, the study introduces a method to remove the main impurity Al in LES, achieving a removal rate of over 99%, reducing its concentration to below 100 ppm. Other impurities, such as Ti, Mn, and Zn, also meet the Chinese Chemical Industry Standard (HG/T 4701-2021). Comparative analyses were conducted between regenerated R-FePO4, commercial C–FePO4, and untreated LES (r-FePO4). LiFePO4 materials derived from these sources were synthesized, followed by an evaluation of their electrochemical performance. The regenerated R-FePO4 matched the quality of commercial FePO4 and significantly outperformed r-FePO4. Additionally, the process proposed in this study yields significant economic benefits, estimating a profit of 719.6 $/t of recycled LES. This research proposes a cost-effective and efficient method for regenerating high-quality battery-grade FePO4 from LES, offering a significant contribution to the closed-loop recycling of waste LiFePO4 batteries.