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To improve the oil recovery of a block in the Wutonggou Formation of the Changji Oilfield, viscosity reducing and foaming agent was optimized to improve the development effect of the water flooding reservoir. The core flooding experiment and microscopic visual experiment were conducted to investigate the production characteristics and EOR mechanism of nitrogen foam flooding. The results show that the 0.5 wt% viscosity reducing and foaming agent DXY-03 was optimized. In the process of microscopic oil displacement by nitrogen foam, nitrogen foam continuously expands and spreads, improves oil displacement efficiency, and greatly improves oil recovery through emulsification and viscosity reduction, squeezing action, dragging action, and Jamin effect. The core flooding experiment shows that on the basis of the water flooding recovery rate of 20.3%, the nitrogen foam huff and puff is increased by 9.2%. The viscosity reducing and foaming agent flooding is increased by 7.8%, and the nitrogen foam flooding is increased by 12.9%. The main EOR mechanism of the viscosity reducing and foaming agent is that it can reduce the interfacial tension between oil and water and can promote heavy oil emulsification and dispersion, thereby forming an oil/water- (O/W-) type emulsion. The reduction in the viscosity of heavy oil makes crude oil easier to extract, realizing the synergistic viscosity reducing and efficiency enhancing effect of nitrogen and viscosity reducing and foaming agents. This study is helpful to provide reference for the development of low-permeability and high-viscosity medium-deep heavy oil reservoirs by chemical agents combined with cold production.