Abstract: The liquefaction properties and mechanism of Xiaolongtan (XLT) lignite were studied. On the basis of high content of water in lignite, the liquefaction behavior of XLT lignite under different atmospheres using water as solvent was preliminarily probed. The results show that XLT lignite has a good liquefaction activity, and its liquefaction conversion gets to 94.5% at 420℃, H₂ atmosphere, and tetralin (THN) used as solvent. During coal liquefaction, the active H stabilizing free radicals formed during coal pyrolysis is mainly from hydrogen donor solvent. H₂ gas has no hydrogenation activity, and it can not directly provide active H for coal liquefaction. When water is used as solvent instead of THN in liquefaction of XLT lignite, high liquefaction conversion occurs under CO atmosphere compared to H₂ or N₂ atmosphere. This suggests that the water gas shift reaction produces active H under CO atmosphere. The active H stabilizes the free radicals formed from coal pyrolysis to form lower molecular weight liquefaction products, and therefore, increasing liquefaction conversion. Because of the low primary pressure of CO in the experiment, the active H formed from the water gas shift reaction is limited. Thus, the liquefaction conversion of XLT lignite is not high when water is used as solvent. But our preliminary study shows that it is a new lignite liquefaction technology using water as solvent under CO atmosphere and has remarkable market value and utilization prospects.