A system and method of recovering heat and water from a slurry, such as tailings from oil sands extraction, is provided. The method includes providing the tailings to a humidification vessel, adding a sufficiently dry gas directly to the slurry in the vessel to form warm, water-saturated gas, such that heat and water are recovered from the slurry, removing the warm, water-saturated gas from the humidification vessel, providing the warm, water-saturated gas to a direct contact condensation vessel, cooling the gas in the condensation vessel to condense the water from the gas, thereby extracting water from the warm, water-saturated gas and recycling the dry gas, and recovering the water from the condensation vessel. Water which is of high quality, suitable for steam generation is obtained by a method in accordance with the present invention.