The sludge-based forming thermal reduction can be used to improve the resource utilization ability of sintering dust. This paper discussed the feasibility and mechanism of sewage sludge as a binder and reducing agent to facilitate iron recycling from sintering dust by mixing wet sludge to form and adding dry sludge to reduce. The results showed that a 1.4% ratio of sewage sludge significantly enhanced the strength of metallurgical pellets, and the compressive strength of wet and dry pellets reached 309.5 and 1233.5 N/P. Meanwhile, with the addition of dry sludge (S/Fe = 2.0), the metallization ratio can be up to 88.4%. Sewage sludge has a more efficient reduction potential than other carbon sources as reducing agents. Combined with XRD, XPS, TG-MS, TG-FTIR, and other characterization methods, the reduction phenomenon of iron was confirmed, and the migration and transformation of metals in sintering dust and the segmented volatilization rule of Pb, Zn, K, Na, and other elements were revealed. It is proven that sludge as the disposal route of metallurgical dust cold-pressed forming and reduction is a green and sustainable view and promising research direction.