The invention relates to a system and method for producing titanium sponge. The system producing titanium sponge comprises a reaction system and a combustion system. The reaction system comprises a reaction chamber, a conduit and a heat exchange device, wherein the conduit is arranged at one end of the reaction chamber, and a sleeve is arranged on the periphery of the conduit; the inlet end of theconduit is located outside the reaction chamber, the outlet end of the conduit extends into molten metallic magnesium inside the reaction chamber, and the outlet end of the conduit is of a hole shrinkage structure; and the heat exchange device is arranged in an inner cavity of the reaction chamber. The combustion system comprises at least one pair of combustion chambers, and the combustion chambers are located on two sides of the reaction chamber separately and connected with a smoke channel annularly distributed on the outer wall of the reaction chamber. According to the system and method for producing titanium sponge, a heat accumulating type gas heating mode is adopted, and the in-furnace heat exchange device is arranged, so that the problems that energy consumption is high and efficiency is low when titanium sponge is prepared through a magnesiothermic reduction method are solved, the production cost of titanium sponge is effectively reduced, and the labor intensity is lowered.