The thermodynamics of magnesiothermic reduction of TiO₂ was studied in order to decrease the oxygen content in reduction product. The Gibbs free energy and adiabatic temperature of reaction system were calculated, and the reaction predominance diagram was drawn. The results show that TiO cannot be reduced by magnesium when the reaction temperature is higher than 1681 K. In order to solve this problem, we put forward a new concept to restrain the reaction temperature by adding diluents. The adiabatic temperatures were calculated at different NaCl, MgCl₂ addition amount and initial temperatures, and the thermodynamic condition for complete reduction of titanium oxide was pointed out. Finally, the experiments were carried out by using NaCl and NaCl-MgCl₂ eutectic salt as diluents, and the titanium oxide was reduced completely.