The conventional viscosity reduction technology through commercial oil-soluble agents for enhanced oil recovery in heavy oil reservoirs has potential safety hazards. In this work, micro-emulsification of heavy oil is proposed as a means of reducing its viscosity for ease of its recovery. The microemulsion-type oil displacement agent was developed, and its performance was characterized by its pseudoternary phase diagram and dynamic light scattering tests. The core tests were used to study the effects of injection volume, injection speed, and subsequent water flooding speed on the oil recovery factors. These results were used to determine the optimal injection parameters. Furthermore, the displacement mechanism for heavy oil was determined based on combined macroscopic and microscopic visual tests. The results showed that the optimal injection volume is 0.15 PV (pore volume), the injection rate is 0.10 ml/min, and the subsequent water flooding rate is 0.20 ml/min. Based on the optimal parameters, the oil recovery efficiency can reach up to 39.83%, which is 25.69% higher than water flooding process. The displacement mechanism of the microemulsion can be divided into three stages. First, when the microemulsion is in contact with the heavy oil, the solubilization occurs spontaneously, and the heavy oil is peeled off from the rock surface. Then, the solvent in the microemulsion interacts with the heavy oil to achieve the viscosity decrease in the heavy oil. Third, during the water flooding process, the viscosity-reduced heavy oil can be emulsified to form oil-in-water emulsion, further realizing the viscosity reduction of heavy oil.