In this study, we conducted physical modeling to investigate the effectiveness of nanodispersed catalysts, specifically pure magnetite and magnetite with nickel oxide, for in situ upgrading of high-viscosity Ashal′cha heavy oil through thermal steam treatment (TST). The reactions were carried out at 250 °C for different treatment durations (24, 48, and 72 h). The aquathermolysis reactions with Fe3O4 + NiO catalyst exhibited remarkable results, achieving an optimum viscosity reduction of 2000 mPa·s through thermal cracking, which converted heavy high-molecular-weight compounds into lighter compounds. Furthermore, the presence of the catalyst contributed to increased levels of light-saturated compounds and aromatic compounds, while significantly decreasing asphaltenes and resins. Hydrogen donors were introduced to prevent hydrocarbon polymerization. Gas chromatography-mass spectrometry (GC-MS) analysis indicated that increasing the treatment duration did not adversely affect the reaction compared to the absence of the catalyst. Notably, the magnetite catalyst demonstrated high efficiency due to its availability, cost-effectiveness, and small nanosize, facilitating penetration into reservoir rock pores when injected into the reservoir medium. These findings underscore the potential of nanodispersed catalysts for in situ heavy oil upgrading, offering viscosity reduction and the conversion of heavy compounds into valuable light compounds.