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This paper presents a new method for thermal characterization of THz Schottky diodes. The method is based on the transient current behavior, and it enables the extraction of thermal resistances, thermal time-constants, and peak junction temperatures of THz Schottky diodes. Many typical challenges in thermal characterization of small-area diode devices, particularly those related to self-heating and electrical transients, are either avoided or mitigated. The method is validated with measurements of commercially available single-anode Schottky varactor diodes. A verification routine is performed to ensure the accuracy of the measurement setup, and the characterization results are compared against an in-house measurement-based method and against simulation results of two commercial 3-D thermal simulators. For example, characterization result for the total thermal resistance of a Schottky diode with an anode area of 9 μm2 is within 10% of the average value of 4020 K/W when using all four approaches. The new method can be used to measure small diode devices with thermal time constants down to about 300 ns with the measurement setup described in the paper.