Due to its wide range of hazardous hydrocarbons and even heavy metal ions, oily sludge has become a great environmental challenge which must be dealt with quite quickly. As a result, ther have been numerous efforts during recent years to develop an efficient method for sludge recovery. The current research studies the effectiveness of solvent extraction with toluene and Fe2O3 nanoparticles for recovery and upgrading of oily sludge. Having employed Design of Experiment (DOE), it has found optimum conditions for sludge recovery with solvent extraction, namely a temperature of 55°C and mixing time of 17 minutes with solvent to sludge ratio of 6.4/4.2. Under these conditions, the sludge recovery has been 37%, which is the maximum available with toluene. Furthermore, it has studied the effectiveness of Fe2O3 nanoparticles for improvement of sludge pyrolysis efficiency in order to upgrade the oily sludge, wherein it has been observed that nanoparticles can significantly decrease the temperature and time of reaching maximum conversion during sludge pyrolysis process. The temperature and time of reaching to the maximum conversion, by means of gamma Fe2O3 nanoparticles, is about 200°C and 1200 s, respectively, which is lower than the condition in which pure sludge is being pyrolyzed.