In the conventional polyethylene terephthalate (PET) pyrolysis process, the formation of char by excessive pyrolysis is mainly due to the dehydration mechanism, so water is considered an auxiliary agent that can effectively inhibit excessive pyrolysis. The preparation of terephthalic acid (TPA) by steam‐assisted pyrolysis of PET is an effective method to achieve closed‐loop recycling of waste PET. To ensure that the reaction is mild enough to reduce excessive cracking products such as char and benzoic acid and thus increase the yield of TPA, it is critical to reduce the reaction rate while maintaining a sufficient excess steam coefficient. Under the optimal operating conditions, when the temperature rise rate was 0.5 °C min−1 and the excess steam coefficient was 150, the yield of TPA was 72.5 wt.%, and the purity was 85.5%. Noticeably, the steam‐assisted pyrolysis system is a heterogeneous reaction system whose reaction mechanism is different from the conventional hydrolysis and pyrolysis reactions and has a unique reaction path. The mechanistic study indicates that, in addition to the thermal cracking of PET molecules occurring in conventional pyrolysis, hydroxyl attack and transfer, and supplementation of benzene ring hydrogen also occur between water and intermediate molecules. Meanwhile, it has also been proven that the intermolecular hydrogen transfer between intermediate molecules and water molecules is the key to reduce the intensity of the reaction and inhibit the formation of char. This discovery illustrates the mechanism of the reaction between water and PET in the steam‐assisted pyrolysis process in the fixed pyrolyzer and justifies the distinction between it and the pyrolysis and hydrolysis processes of PET. It provides a theoretical basis for optimizing the pyrolysis process of PET, which is essential for the industrialization of TPA preparation from PET steam‐assisted pyrolysis.