Disclosed is a lignite machining system with smashing and drying functions. The lignite machining system comprises a feed system, a hammer mill, an airflow drying oven, a pipeline, a cyclone material receiving device, a cloth bag powder receiving device, a main induced draft fan, an air heating furnace and an automatic material returning system. The airflow drying oven and the pipeline are connected with the hammer mill. The lignite machining system has the characteristics that the hammer mill is provided with the drying oven, so that a smashing and drying all-in-one machine is formed; a discharge outlet of a fuel cyclone dust collector and an discharge outlet of a cyclone dust collector are connected with a dynamic charging bin; two screw conveyers are arranged in the dynamic charging bin; and the two discharge outlets lead to a discharge scraper conveyer and a fuel blowing inlet of the air heating furnace correspondingly. The lignite machining system has the function that smashed and dried lignite powder is fed to the air heating furnace automatically and the coking prevention function on the air heating furnace, and has a series of facilities through which prevention of combustion and explosion in the lignite machining process is ensured. The technology is simplified, the occupied space is reduced, and the manufacturing cost and operation cost are reduced.