With the aim of upgrading current food waste (FW) management strategy, a novel FW hydrothermal pretreatment and air-drying incineration system is proposed and optimized from an energy and exergy perspective. Parameters considered include the extracted steam quality, the final moisture content of dehydrated FW, and the reactor thermal efficiency. Results show that optimal working condition can be obtained when the temperature and pressure of extracted steam are 159 °C and 0.17 MPa, the final moisture content of dehydrated FW is 10%, and the reactor thermal efficiency is 90%. Under such circumstance, the optimal steam energy and exergy increments reach 194.92 and 324.50 kJ/kg-FW, respectively. The novel system is then applied under the local conditions of Hangzhou, China. Results show that approximately 2.7 or 11.6% (from energy or exergy analysis perspective) of electricity can be additionally generated from 1 ton of MSW if the proposed novel FW system is implemented. Besides, comparisons between energy and exergy analysis are also discussed.