Oil sands exploitation in Alberta relies on water-intensive processes that result in large amounts of oil sand process-affected water (OSPW). Tailings ponds are used to store OSPW in accordance with government regulations. One of the main challenges of these tailings ponds is the settling of fine particles which, without treatment, would remain suspended for decades. This study introduces a novel application for the oxy-cracking technique to enhance fine particle settling through simultaneous oxidation and cracking reactions: residual bitumen and hydrocarbons are cracked and solubilized in the liquid phase, freeing the fine particles to agglomerate and settle faster. The pathway for this process is determined by the kinetics parameters, and it releases minimal CO2. A full lumped kinetics model study is presented to describe the oxy-cracking reaction. Settling enhancement and dewaterability were studied using the initial settling rate (ISR) and capillary suction time (CST) methods. After oxy-cracking, the mudline was reduced by 65% within 24 h with no settling observed in the original sample. CST experiments resulted in fast and easy dewaterability of the consolidated solids after an oxy-cracking reaction of neat OSPW samples. The oxy-cracking process outperforms other processes reported in the literature for diluted samples treated with large amounts of coagulants. Oxy-cracking and settling enhancement were further confirmed by the characterization techniques of GC–MS, FTIR, XRD, TGA, and TOC analysis. The proposed oxy-cracking technique offers new opportunities for the wastewater treatment of OSPW generated by the oil sands industry.