The rapid urbanization and industrialization have led to the massive generation and accumulation of municipal sludge, posing significant challenges to waste management and environmental sustainability. To address this issue, it is imperative to develop innovative methods for the safe, efficient, and resource-oriented utilization of sludge, aligning with the principles of waste reduction, harmless treatment, and resource recovery. In this context, this study explores the application of chemical looping gasification (CLG) for hydrogen production from municipal sludge generated in highway service areas. This approach is crucial for the advancement of a circular economy and the transition to sustainable energy systems, as it can convert sludge into high-purity hydrogen, a vital energy carrier. Compared to conventional sludge treatment methods, CLG offers several advantages, including minimized energy losses, the production of high-value-added products, and the suppression of pollutant formation. To evaluate the feasibility and optimize the CLG process, a thermodynamic calculation platform was employed to develop an iron-based oxygen carrier-enabled sludge CLG system. The study conducted a comprehensive computational analysis of the reaction pathways and thermodynamic behaviors of key sludge elements, as well as the interaction mechanisms of the iron-based oxygen carriers. The results showed that increasing the oxygen supply within the fuel reactor (FR) effectively shifts the CLG equilibrium towards the forward direction, enhancing the overall gasification efficiency. Additionally, the addition of water molecules into the system facilitated the depolymerization and conversion of carbon elements, thereby increasing the equilibrium concentration of hydrogen (H2) in the produced syngas. Under optimal conditions, specifically, an oxygen carrier-to-municipal sludge ratio (OC/MS) of 0.25 and a steam-to-municipal sludge ratio (S/MS) of 0.5 at a temperature of 900 ℃, the CLG process achieved the syngas with a high H2 content. Notably, this configuration ensured the complete conversion of nitrogen oxide (NOx) precursors into environmentally benign nitrogen gas (N2), thereby mitigating potential pollutant emissions. Further optimization within the steam reactor (SR) was conducted by considering the solid-phase residuals under optimal CLG conditions. The analysis determined that a hydrogen production temperature of 600 °C, coupled with a steam addition of 1 kmol per kilogram of sludge, resulted in a hydrogen purity of 95.45%, demonstrating the process's effectiveness in producing high-purity hydrogen suitable for various applications. In the air reactor (AR), the optimal oxygen supply condition for regenerating the oxygen carrier was identified as 0.125 kmol of the sludge model compound. The sequential restoration of lattice oxygen in the iron-based carrier (Fe→FeO→Fe3O4→Fe2O3) during regeneration in the air reactor ensured the sustained functionality and longevity of the oxygen carrier.