Studies have shown significant discrepancies between the recent experiment [Berg etal., Phys. Rev. Lett. 120, 055002 (2018)PRLTAO10.1103/PhysRevLett.120.055002] and current theoretical calculations on the electron-impact ionization cross section of ions in warm dense magnesium. Here, we present a systematic study the effects of the ionic correlations and free-electron screening on the electron-impact ionization of ions in warm dense matter. The ionic correlation and the free-electron screening effects yield additional Hermitian terms to the calculation of the ionic central-force-field potential, which significantly change the electronic structure compared with that of the isolated ion. In calculating the electron-impact ionization, we describe the impact and ionized electrons using a damped-distorted wave function, which considers the momentum relaxation of free electrons due to collisions with other free electrons and ions. We reproduce the electron-impact ionization process for Mg^{7+} in the solid-density plasma and increase the ionization cross section by one order of magnitude compared with that of the isolated ion, which excellently agrees with the experimental result of Berg etal.