<p>Neodymium, a key rare-earth element used in high-performance magnets for electric vehicles and wind turbines, is currently produced via an emission-intensive molten-salt electrolysis process. This motivates exploration of metallothermic reduction as a potential alternative. Here we show a two-step metallothermic pathway for producing neodymium from oxide using magnesium as the reductant. Although magnesiothermic reduction has a positive standard Gibbs energy change and has therefore been overlooked historically, modeling and experimental validation show that magnesium can reduce neodymium oxide through the formation of a molten magnesium-neodymium alloy with a favorable Gibbs energy of mixing, which overcomes this thermodynamic barrier. Subsequent exposure to hydrogen then precipitates neodymium as solid neodymium hydride, separating it from the molten alloy. This work demonstrates the pathway’s thermodynamic viability and highlights reduction and separation mechanisms that could be leveraged in the design of new metallothermic reduction processes.</p>