Ferronickel products obtained from the traditional process used to treat limonite nickel laterite usually assay very low-grade Ni, only 3–5% Ni due to the high Fe/Ni ratio of limonite nickel laterite. This paper describes an investigation conducted to upgrade limonite nickel laterites for the preparation of ferronickel by using selective reduction smelting technology. By means of thermodynamic calculations and smelting experiments, the smelting separation mechanism and the behavior of P and S removal in the smelting process, as well as the influence of smelting factors, have been systematically identified. The best production index of ferronickel is obtained under optimized conditions as follows: smelting the pre-reduced lumps at 1525 °C for 45 min with a basicity of 0.60, MgO/SiO2 ratio of 0.30, and nickel and iron metallization rate of 94.30% and 10.93%, respectively. The resulting ferronickel features a nickel and iron grade of 12.55% and 84.61% and a nickel and iron recovery of 85.65% and 10.87%, respectively. In addition, the content of S and P contained in ferronickel is only 0.11% and 0.0035%, respectively. The ferronickel obtained from the selective reduction smelting process is a fine material for the subsequent stainless steel smelting due to its high Ni grade and low content of impurities.