Dealing with municipal sludge in an effective way is crucial for urban development and environmental protection. Co-processing the sludge by burning it in a decomposition furnace in the cement production line has been found to be a viable solution. This work aims to analyze the effects of the co-disposal of municipal sludge on the decomposition reactions and NOx emissions in the decomposing furnaces. Specifically, a practical 6000 t/d decomposition furnace was taken as the research object. To achieve this, ANSYS FLUENT with a UDF (user-defined function) was applied to establish a numerical model coupling the limestone decomposition reaction, fuel combustion, and NOx generation and reduction reactions. The flow, temperature, and component field distributions within the furnace with no sludge were firstly simulated with this model. Compared with site test results, the model was validated. Then, with sludge involved, the structure and operation parameters of the decomposition furnace for the co-disposal of municipal sludge were investigated by simulating the flow field, temperature field, and component field distributions. Parametric studies were carried out in three perspectives, i.e., sludge mixing ratio, preheating furnace arrangement height, and sludge particle size. The results show that all three aspects have great importance in the discomposing process. A set of preferable values, including a sludge mixing ratio of 10%, preheating furnace height of 21.5 m, and sludge particle diameter of 1.0 mm, was obtained, which resulted in a raw material decomposition rate of 89.9% and a NO volume fraction of 251 ppm at the furnace outlet.