Lithium slag (LS), a by-product of lithium extraction process, is usually stacked on the surface, occupying a significant amount of land area and leading to various environmental concerns. In this study, the pozzolanic activity of LS was improved by the thermal activation method, and its hydration reaction and hydration products were studied under simulated hydration conditions. The changes of macroscopic and microscopic appearance, particle size, chemical composition and chemical bonding of LS were studied at different thermal activation temperatures (0–1100 °C). Subsequently, the activation effects of LS at different temperatures were preliminarily assessed using a dissolution tests, and its hydration process and products were investigated under simulated hydration conditions. Finally, thermally activated LS was used to prepare cement mortar. The results indicated that spodumene decomposition raised the amorphous phase content in LS, thereby enhancing its pozzolanic activity. However, it is important to note that the activity of the amorphous phase in calcined LS was relatively poor and its hydration reaction proceeded at a slow pace. The presence of sulfate in LS was critical for enhancing the 7-d compressive strength of cement mortar. The amorphous phase was contributed to the later strength development of LS-PC mortar. LS activated at 600–700 °C significantly improved the early strength of cement mortar while ensuring better strength development. After 90 d of curing, the compressive strength of LS600 achieved 70 MPa. By understanding these key findings, the amount of LS in cement-based materials can be maximized to improve the comprehensive utilization rate of LS. However, due to the high SO3 content in LS, the influence of LS on the volumetric stability of the cement-based material is still a subject that necessitates further research.