The in-situ conversion process (ICP) is believed to be the effective technique to realize successful exploitation of low- to medium thermal matured lacustrine shales oil (0.5–1.0% Ro) in China, and the shale of the seventh member of the Triassic Yanchang Formation in the Ordos Basin (abbreviated as Chang 7 shale) is the most potential and representative shale for ICP. However, the Chang 7 shale is rich in sulfur, in some organic-rich laminae, pyrite (FeS2) even accounts for more than 50% of the mineral content). During semi-open pyrolysis experiments, a large amount of hydrogen sulfide (H2S) was generated accompanied with hydrocarbons. H2S is toxic and corrosive, special facilities are needed and additional treatment to remove it can be expensive. Therefore, detailed characterization on the thermal transformation of organic-inorganic sulfur and H2S formation is a key issue for the effective and environmentally friendly development of ICP. The field emission scanning electron microscope (SEM), X-ray photoelectron spectroscopy (XPS), X-ray diffraction (XRD), and elemental analysis were combined to examine the partitioning of sulfur between the organic and inorganic phases with increasing thermal stress and to further reveal the evolution of H2S. Kerogen decomposition and the corresponding products exerted strong influences on the transformation of organic-inorganic sulfur and, thus, on H2S formation. Before the peak hydrocarbon generation stage (1.24 %Ro), H2S showed an abnormally sharp increase and little or no secondary FeS2 was formed. The sulfur generated by FeS2 decomposition partly formed H2S and partly incorporated into the organic matrix of kerogen. Hydrogen radicals generated by kerogen decomposition and secondary oil cracking are proposed as the controlling factor in the initial FeS2 decomposition. The results are expected to help predict the H2S release during the true ICP of the Chang 7 shale.