Abstract Reduction of iron oxide by biomass (a renewable energy) instead of fossil energy can greatly reduce greenhouse gas (carbon dioxide) emissions. In this work, the reduction characteristics and kinetics of iron oxide by lignin (a main component of biomass) were studied, aiming at efficient utilization of lignin as a renewable and highly reactive carbon substitute for coal. The reduction temperature range of iron oxide by lignin was found to be mainly 750–900 °C. It was also observed that the presence of iron could catalyze the pyrolysis of lignin, while the pyrolysis products of lignin promoted the reduction of iron oxide. An increase in the lignin-to-iron oxide mass ratio lowered the temperature at the maximum mass-loss rate determined by TGA. The activation energy varied, increasing first and then decreasing, while increasing the reaction fraction (α), with the turning point at α = 0.4. Compared with CO and coal, lignin appeared to be superior for reducing iron oxide, owing to the formation of nanometer-thickness carbon film in the process. The temperature at the maximum reduction rate was 134 °C for lignin, much lower than that of coal.