Iron ore reduction and iron cementation by CH4-H2-Ar gas was investigated in a laboratory isothermal fixed bed reactor. Iron ore was first reduced to metallic iron by hydrogen, then carburised to cementite by methane. Increasing temperature and hydrogen content accelerated the reduction process. Methane had almost no effect on the reduction process. Meanwhile, higher temperatures increased the rate of cementation and also the rate of free carbon deposition. The optimal temperature for cementite formation was found to be 750C. At this temperature, reduction of iron ore to cementite by gas containing 55 vol per cent hydrogen, 35 vol per cent methane and 10 vol per cent argon was completed in about 15 minutes. Addition of sulphur into the reducing/carburising gas strongly retarded the process of cementite formation and free carbon deposition. Cementite is an unstable phase which decomposes to iron and carbon. The rate of cementite decomposition increased with temperature up to 600C and above 750C . In the temperature range from 600C to 750C the rate of cementite decomposition decreased with temperature. Cementite was the most stable at 750C and least stable at 600C. The two-interface grain model was used to describe the process of iron ore reduction and the volume reaction model was employed to model the iron cementation process. The simulated results for both reduction and cementation are consistent with the experimental data.