We have demonstrated a sequence of degradation, dissolution and catalytic hydrothermal gasification (CHTG) of lignite in alkaline water. A Victorian lignite was subjected to hydrothermal treatment (HT) in an aqueous solution of NaOH at 250 °C, and then oxidation with pressurized O2 at 100 °C. The sequential HT and oxidation solubilized a 95% portion of the lignite on mass/carbon bases. The resulting solution was further converted by CHTG in a flow reactor at 350 °C for 10 h, employing a ruthenium/activated-charcoal catalyst (ruthenium loading; 16 wt%). The initial carbon conversion to gas was as high as 98% while CH4, CO2 and H2 were produced. The conversion gradually decreased due to coke deposition over the catalyst but was near steady around 83% at 8–10 h. The solubilized lignite consisted of compounds with molecular mass up to 5,000. The heavier portion (molecular mass > 1,000) was responsible for the coke formation and accumulation that caused the catalyst deactivation.