Abstract: Currently, iron is extracted from ores such as hematite by carbothermic reduction. The extraction process includes several unit steps/processes that require large-scale equipment and significant financial investments. Additionally, the extraction process produces a substantial amount of harmful carbon dioxide (CO₂). Alternative to carbothermic reduction is the reduction by hydrogen plasma (HP). HP is mainly composed of exciting species that facilitate hematite reduction by providing thermodynamic and kinetic advantages, even at low temperatures. In addition to these advantages, hematite reduction by HP produces water, which is environmentally beneficial. This report reviews the theory and practice of hematite reduction by HP. Also, the present state of the art in solid-state and liquid-state hematite reduction by HP has been examined. The in-flight hematite reduction by HP has been identified as a potentially promising alternative to carbothermic reduction. However, the in-flight reduction is still plagued with problems such as excessively high temperatures in thermal HP and considerable vacuum costs in non-thermal HP. These problems can be overcome by using non-thermal atmospheric HP that deviates significantly from local thermodynamic equilibrium.