A novel process for preparing direct reduction iron (DRI) and titanium nitride (TiN) from Panzhihua titanomagnetite concentrate is proposed. This process involves pelletizing, direct reduction roasting and magnetic separation. The effects of reduction temperature, coal dosage and reduction time on the phase transformation of composite pellets were investigated by X-ray diffraction. Results show that TiN formation proceeds less easily than metallic iron formation. Increasing the reduction temperature, reduction time and coal dosage can promote the transformation of titanium to TiN. Titanium was almost completely transformed into TiN under the conditions of 1300 °C reduction temperature, 26 wt % coal dosage and 90 min reduction time. The scanning electron microscopy (SEM) analysis showed that near-spherical metallic iron particles with diameters from dozens of microns to about 300 μm were formed in the reduced pellets, whereas the TiN particles generally measured less than 10 μm. The energy dispersive spectroscopy (EDS) results revealed that the TiN phase contains a certain amount of vanadium and carbon, and traces of other impurities. The reduced composite pellets under the optimum conditions were processed by grinding and subsequent magnetic separation. As a result, a DRI with 92.88 wt % Fe, 1.00 wt % Ti, and 0.13 wt % V was obtained, and the recoveries of Fe, Ti, and V were 92.85 wt %, 9.00 wt %, and 19.40 wt %, respectively. 91.00 wt % Ti and 80.60 wt % V were concentrated in the rough TiN concentrate.