The presence of sulfur in coals has raised serious environmental issues, which are obstacles to large-scale utilization of coals. Hydrothermal dewatering (HTD) is a promising upgrading method for low-rank coals (LRCs) to significantly remove oxygen-containing groups and irreversibly decrease the inherent moisture content. To uncouple the complex behavior of sulfur evolution during HTD processing of lignite and to elucidate the main mechanism, this research experimentally studied the characteristics of sulfur transformation in a Chinese lignite from Xiaolongtan coal mine during HTD upgrading. Results reveal that the HTD upgrading of raw coal within the temperature range from 200 to 300 degrees C can obtain a desirably upgraded coal with higher calorific value and lower inherent moisture. Compared with raw coal, organic sulfur content decreased significantly, whereas sulfate sulfur content gradually increased after HTD. X-ray photoelectron spectroscopy results showed that HTD promoted aliphatic sulfur decomposition and the release of sulfur-containing gases. The released gases, such as H2S, reacted with the organic matrix of coals to form thiophenic sulfur. As a result, thermally stable thiophenic sulfur increased with increasing HTD temperature. The increase of sulfate sulfur content after HTD was attributed to the release of SO2. The calculation of the mass balance on the sulfur revealed that the vast majority of sulfur remained in upgraded coals, and only a minimal amount was released into gaseous and liquid products. The sulfur-containing gases remarkably increased with increasing HTD temperature, whereas the sulfur in the wastewater decreased.