Abstract: Heavy oil is characterized by high viscosity. High viscosity makes it challenging to recover and transport. HZSM-5, MoO3/HZSM-5, ZrO2/HZSM-5 and MoO3–ZrO2/HZSM-5 catalysts were developed to promote in situ desulfurization and viscosity reduction of heavy oil. The physical and chemical properties of catalysts were characterized by XPS, XRD, TEM, NH3-TPD, etc. The effects of temperature, catalyst type and addition amount on viscosity and composition of heavy oil were evaluated. The results showed that the presence of MoO3–ZrO2/HZSM-5 nanoparticles during aquathermolysis could improve the oil quality by reducing the heavy fractions. It reduced viscosity by 82.56% after the reaction at 280 °C and catalyst addition of 1 wt%. The contents of resins and asphaltic in the oil samples were 5.69% lower than that in the crude oil. Sulfur content decreased from 1.45% to 1.03%. The concentration of H2S produced by the reaction was 2225 ppm. The contents of sulfur-containing functional groups sulfoxide and sulfone sulfur in the oil samples decreased by 19.92% after the catalytic reaction. The content of stable thiophene sulfur increased by 5.71%. This study provided a basis for understanding the mechanism of heavy oil desulfurization and viscosity reduction.