Application of terahertz time-domain spectroscopy is demonstrated to study the process of Ag2O thermal decomposition. In the process of decomposition, the time-resolved signals are characterized by broad oscillations and decreased intensity, and THz pulse essentially contains two broad spectral components: one centered at around 0.35 THz and a band with a maximum at around 0.81 THz shift to 0.71 THz. Optical absorption spectra of different specimens are studied in the frequency range 0.3-1.4 THz and the data are analyzed by the relevant theory of the effective medium approach combined with the Drude-Lorentz model. The analysis suggests that optical properties stem from the Drude term for the metallic phase and the Lorentz term for the insulator phase in the complex system.