The invention discloses an oily sludge recycling and reduction treatment method and system. The treatment method comprises the steps of crushing, fluidization, screening and impurity removal, chemicalhot washing, solid-liquid separation, drying, deep treatment and the like. The treatment system mainly comprises an oily sludge storage tank, a feeding device, an impurity removal system, an oil recovery system and a dehydration system which are connected in sequence, wherein oily sludge in the oily sludge storage tank is conveyed to the impurity removal system through the feeding device to be subjected to crushing, fluidization and screening treatment, then the oil sludge treated by the impurity removal system is conveyed to the oil recovery system to collect crude oil, and isolated slag slurry is conveyed to the dehydration system to be subjected to solid-liquid separation, drying treatment and harmless deep treatment. By adopting the method and the treatment system provided by the invention, more than 80% of mineral oil in the oily sludge can be recycled, and meanwhile, the moisture content in the sludge is reduced to 30% or below, so that recycling and reduction of the oily sludgeare realized.