A decoupled numerical modelling method is developed in this study to simulate the whole combustion process of biomass in a grate firing boiler, which includes the thermochemical conversion of biomass in the fuel-bed and gaseous combustion in the freeboard. With the aid of this modelling method, the objective of this study is to explore the NOx reduction mechanism as well as to investigate the potential of internal flue gas recirculation technology (IFGRT) on the combustion process and emissions formation in a 40 t/h biomass-fired grate boiler. Computational fluid dynamics (CFD) modelling results show that IFGRT can be realized in the grate boiler by establishing intense flue gas recirculation within the boiler, which allows for lower peak combustion temperatures and smaller flame kernel sizes, while improving the overall average gas temperature. Consequently, NOx emission can be reduced mainly via the thermal formation route in comparison with the conventional combustion case. More specifically, the parallel over-fired air (OFA) burner configuration is suggested for implementation to produce even lower NOx emission compared to the staggered OFA burner configuration. To further understand the reasons behind the NOx reduction, NOx formation and destruction mechanisms are also examined through reduced order modelling (ROM) with the help of detailed reaction chemistry. It is revealed that flue gas recirculation inhibits NOx formation from thermal, NNH and N2O routes. Although NOx destruction rate through reburning is suppressed, the net NOx production rate is found to be decreased under the condition of IFGRT. Moreover, as the flue gas recirculation ratio increases, final NOx emission shows a decreasing trend.