The invention discloses a medium-low rank coal processing system and method. The system comprises a pyrolysis furnace and a separation unit, wherein an inner tube is arranged in the chamber of the pyrolysis furnace; an gas collecting chamber is formed between the inner tube and the furnace wall of the pyrolysis furnace; a low-temperature raw gas outlet is arranged in the top of the gas collecting chamber; the separation unit comprises an oil gas separation device; a low-temperature raw gas inlet is arranged in the top of the oil gas separation device; a low-temperature purified gas outlet is arranged in the upper part of a side wall of the oil gas separation device; the low-temperature raw gas outlet of the pyrolysis furnace is connected with the low-temperature raw gas inlet of the oil gas separation device; and the low-temperature purified gas outlet of the oil gas separation device is connected with a low-temperature purified gas inlet of a heat exchanging tube. The system provided by the invention gathers coal powder pyrolysis, gas solid separation and raw-gas waste-heat utilization in one, uses the purified gas as a hydrogen source and realizes purification of pyrolysis products and heat maximum utilization.