Stainless steel pickling sludge (SSPS) is classified as hazardous solid waste, while Argon Oxygen Decarburization (AOD) slag is challenging to utilize due to the leaching toxicity of Cr. This study introduces a novel in-line co-processing technique for AOD slag and SSPS, parallel to the steelmaking process, aimed at metal recovery, sulfur fixation, and slag detoxification: pre-treatment-AOD slag bath approach. The transformations and migrations of sulfur and metal elements, such as Fe and Cr, in the co-processed mixture were analyzed using thermogravimetric–mass spectrometry (TG-MS) and scanning electron microscopy–energy dispersive spectroscopy (SEM-EDS). The results indicated that sulfur in SSPS could be transformed from CaSO4 to CaS under controlled low pre-reduction temperatures (below 800 °C), facilitating its stabilization in the slag and achieving a sulfur fixation rate of over 99%. Metal elements, including iron and chromium, first formed a small portion of spinel (FeCr2O4) during the pre-reduction phase, then Fe-Cr or Fe-Cr-C-based alloy particles were rapidly formed at high temperatures and in the presence of reducers in the slag bath (1550 °C), aggregating and growing spontaneously, ultimately achieving a metal recovery rate of over 95%. Furthermore, a reaction model for SSPS briquettes in the AOD slag bath was established to further reveal the mechanisms of sulfur, iron, and chromium stabilization and migration, thereby providing a basis for the harmless disposal of both materials. The product alloys are expected to be used as additives in stainless steel production, while the harmless slag could be safely utilized in the preparation of cementitious auxiliary materials.