The effect of steam explosion on physicochemical properties of sludge and the performance of anaerobic digestion (AD) was investigated. The steam explosion was conducted under different combinations of temperature and time, ranging 151–198 °C and 4–12 min respectively. The capillary suction time (CST) and viscosity of the sludge was increased with particle size decreased by improved hydrolysis temperature and prolonged hydrolysis time. The best sludge solubilization achieved was 41.3% under pretreatment condition of 198 °C and 4 min. Biogas production was enhanced with the improved sludge solubilization, and a linear correlation was found between biogas production and the severity factor (logR0) of steam explosion. However, the biogas productivity was reduced when the logR0 was increased from 3.79 to 3.96, probably owing to the generation of refractory organics during the high severity pretreatment. The temperature of 198 °C and the time of 8 min were the recommended operation parameters of steam explosion pretreatment for sludge AD, which could improve biogas production by 99.7 mL/g VSfed. The pH and NH4+-N during sludge AD was increased by steam explosion pretreatment; however, no inhibition on biogas production was observed.