To improve the fire extinguishing efficiency of existing dry powders, a new type of superfine dry powder was prepared using magnesium hydroxide as an additive. In our study, a thermogravimetric analysis (TGA) and differential scanning calorimetry (DSC) were used to analyze the thermal decomposition of the synthesized powders. The temperature of thermal decomposition, weight loss, and other thermodynamic parameters of the fire extinguishing powders were analyzed to explain the performance advantages of the compound superfine powder. Through a small-scale fire experiment, the physical parameters of the extinguishing process-such as extinguish time, powder dosage, smoke concentration, and minimum extinguishing concentration-were quantified for the suppression of a diesel fire using the different powders; these parameters were used to evaluate the fire extinguishing capacity and toxic gas suppression ability of the powders. TGA demonstrated that the compound superfine powder decomposed more quickly and its thermal decomposition process was much shorter than those of the other powders. The DSC data indicated that the compound superfine powder could decrease the characteristic temperature at each stage and thus the powder absorbed the flame's heat more quickly and suppressed flame propagation. The fire extinguishing test demonstrated that the consumption of the three types of fire extinguishing powder decreased with an increase in the driving pressure, and the order of powder dosage was as follows: commercial dry powder > superfine powder > compound superfine powder. Similarly, the order of minimum extinguishing concentration was as follows: commercial dry powder > superfine powder > compound superfine powder. Furthermore, the compound superfine powder exhibited a greater capacity for controlling toxic and harmful gas emissions.