With the rapid development of China’s economy, urban domestic sewage and industrial wastewater treatment efficiency has improved, resulting in a significant increase in sludge production. Thermal drying is essential for reducing, safely disposing of, and resourcefully utilizing sludge. However, this drying process inevitably releases harmful pollutants, posing potential environmental risks that necessitate careful management. This work focused on the thermal drying of municipal sludge at five temperature intervals (90–210 °C) and examined the impact of calcium oxide on sludge drying properties. The results indicated that higher temperatures increased sludge drying rates, with optimal efficiency achieved at a 15% calcium oxide addition. Online detection of NH3, H2S, CO, and CH4 in the exhaust gas revealed that pollutant generation was temperature-dependent. While calcium oxide addition had no significant effect on CH4 and CO emissions, it significantly inhibited the generation of H2S and NH3. This work provided crucial insights into optimizing sludge treatment, which improved drying efficiency and mitigated the release of hazardous pollutants, thereby reducing potential environmental and health risks associated with sludge disposal.