Successful direct electrochemical reduction of mixed powders of terbium oxide (Tb4O7) and nickel oxide (NiO) to the intermetallic compound, TbNi5, is demonstrated in molten CaCl2 at 850°C by constant voltage (2.4–3.2V) electrolysis. The reduction mechanism was investigated by cyclic voltammetry using a molybdenum cavity electrode in conjunction with characterisations of the products from both constant voltage and potentiostatic electrolysis under different conditions by XRD, SEM and EDX. It was found that the reduction started from NiO to Ni, followed by that of Tb2O3 (resulting from Tb4O7 decomposition) on the pre-formed Ni to form the intermetallic compound. The reduction speed increased with increasing the cell voltage, but the speed gain was counterbalanced by decreased current efficiency and increased electric energy consumption. At 2.4V, the current efficiency reached 63.2%, and the energy consumption by electrolysis was as low as 3.2kWh/kg TbNi5 when the oxide phase was converted fully to the metal phase (XRD) in 4h. The oxygen level in the produced TbNi5 could readily reach 1800ppm by electrolysis at 3.2V for 12h with the energy consumption being 18.9kWh/kg TbNi5.