Biochar production by pyrolysis of sewage sludge (SS) is one of effective ways to realize resource recovery and harmless treatment of SS. However, biochar prepared by direct pyrolysis of SS has a lower specific surface area and higher heavy metal content. This study was aimed to evaluate the effect of low-oxygen and addition of poplar sawdust (PS) on sludge-derived biochar. The properties of biochar and heavy metals behavior were systematically characterized. The presence of 10% O2 during SS pyrolysis had a significant effect on the specific surface area of the pyrolytic biochar and the chemical species of heavy metals. In comparison with the pyrolytic biochar under N2 atmosphere, the yield of co-pyrolytic biochar from 10% O2 decreased by 6.7% at 350 °C and 8.3% at 650 °C, while it had the highest fixed carbon content of 19.6%. Moreover, the addition of PS also increased the specific surface area of pyrolysis biochar to 26.8 m2 g−1 at 650 °C. With the increase of pyrolysis temperature, heavy metals including Zn, Cr, and Cu in SS were transformed from the exchangeable and reducible states to oxidizable states and residue states. Especially, the presence of 10% O2 can also promote the formation of oxidizable states of heavy metals in biochar. Based on risk assessment code analysis, the ecotoxicity of heavy metals in biochar with the presence of O2 was evidently lowered. Therefore, a low oxygen atmosphere and co-pyrolysis of sludge and biomass could be effective ways to improve the quality of sludge-based biochar.