Producing light fuels or valuable chemicals from coal tar is an important strategy to achieve the high value-added utilization of coal tar. This study proposed an integrated process of coal tar upgrading and in-situ reduction of Fe2O3. The effect of reaction temperature on the product distribution, coal tar component, and crystal phase transition of Fe2O3 were investigated. It is shown that increase of reaction temperature leads to increase production of H-2 or CH4 rich gas and decrease of tar. Tar analysis revealed that more polycyclic aromatic hydrocarbons (PAHs) are formed along with the decrease of H/C ratio. The crystal phase transition from oxidation to reduction state can be detected on spent Fe2O3. The reduction degree of Fe2O3 is closely associated with the reaction temperature. Coke deposited on the spent Fe2O3 can be used as reducing agent, producing Fe3C when it was treated under N-2 atmosphere. This study provides an integrated method of producing valuable aromatic compounds from coal tar as well as reduction process of Fe2O3 for steelmaking industry.