Ammonia (NH3) emissions from intensive cattle feedlots can be significantly reduced by the application of lignite to the bedding materials. Unfortunately, the high-water content of lignite leads to high transportation costs that preclude the use of this otherwise low-cost and efficient NH3 absorbing material. Efficient dewatering of lignite is required so that its transportation from mining sites to feedlots is economically feasible. It is important that dewatering of lignite does not decrease the NH3 capture capacity or increase potential safety hazards. This work evaluates the effects of an aerobic drying on dewatering, NH3 adsorption capacity, risk of spontaneous combustion, and the underlying surface chemistry of lignite. We found that aerobic dewatering at 200 °C decreased the lignite water content from 61.6% to 4.2% with reduced risk of spontaneous combustion, while ammonium (NH4+) and NH3 adsorption by lignite increased significantly by 65.8% and 28.8%, respectively. Chemical characterization indicated that these enhancements originated from partial oxidation of the dried lignite surfaces. The linear correlation between NH4+ adsorption and the concentration of oxygen-containing functional groups provides insight into the surface chemistry of NH3 adsorption, which is critically important for designing efficient lignite-based feedlot bedding materials.