The reduction mechanism of stainless steelmaking dust and carbon pellets was investigated. The metal oxides present in the dust were reduced by carbon with a new direct reduction technology. The direct reduction parameters were determined by measuring the rates of dust melting and reduction. The results show that the rate of reduction is faster than that of the melting. Both melting and reduction processes are accelerated by the direct transfer of heat from the smelting slag. The recovery of metals is improved while the pellets were added to argon oxygen decarburization(AOD) or vacuum oxygen decarburization(VOD) vessels in the late period of the first smelting stage. More carbon travels to the slag instead of to the steel because the diffusion coefficient of carbon, impacted by the viscosity of slag and surface tension between slag and melted steel, is larger in the slag than in the steel. The viscosity of slag is about 2.54Pa·s and the surface tension between slag and steel is about 490mN/m.