The invention relates to a recycling treatment system and a recycling treatment method of dewatered sludge. The recycling treatment system is composed of an incineration boiler, a first flue gas waste heat exchanger, a sludge storage pool, an alkaline conditioning chamber, a thermal cracking chamber, a dewatering chamber, a second flue gas waste heat exchanger, a waste heat drying chamber and an anaerobic fermentation tank. The recycling treatment method comprises the following steps: firstly, performing alkaline conditioning and thermal cracking on the dewatered sludge and then dewatering to obtain a solid phase and a liquid phase, performing drying treatment on the solid phase with thermal cracking flue gas waste heat as a heat source to obtain the dried sludge, and producing biogas from the liquid phase with drying flue gas waste heat as the heat source. The recycling treatment method realizes the removal of easily removable moisture in the sludge and also realizes sludge stabilization; meanwhile, the recycling treatment method is capable of promoting further efficient removal and biochemical degradation of the moisture content in the sludge; and as a result, the problems of low drying efficiency, easy binding and easy explosion are solved, and efficient recycling utilization of the sludge based on phase separation is realized.