In a governmental funded 3-year research project a recycling process for nickel-metal hydride batteries (NiMH) has been developed. Today the discarded batteries are used in the steel industry as a cheap nickel-source. Cobalt is not paid for and rare earths (RE) are slagged and lost for reuse. Spent NiMH batteries contain 36–42% nickel, 3–4% cobalt and 8–10% mischmetal consisting of lanthanum, cerium, praseodymium and neodymium. The dismantled and processed NiMH are melted in a dc electric arc furnace producing a nickel–cobalt alloy and a slag phase highly enriched with RE-oxides. The key for success in this process was to find a suitable slag system which ensures best separation of NiCo alloy from the rare earth oxides. Different oxidic and halogenic slag systems are investigated on a laboratory and technical scale. The slag systems CaO–CaF2 and CaO–SiO2 were determined to be suitable for subsequent pilot plant trials. In these trials, the CaO–CaF2 system has shown a better melting behaviour than the CaO–SiO2 system. Nickel and cobalt were found nearly completely in the metal phase whereas the rare earths were transferred into the slag as oxides. Pyrometallurgical refining of the nickel–cobalt alloy did not make sense as investigated in technical scale trials. Within the scope of a scenario calculation the economical feasibility was demonstrated for a model scenario.