Recently, there has been a remarkable effort in employing terahertz (THz) spectroscopy for investigating material properties. Pulsed THz time-domain spectroscopy is a coherent technique, in which both the amplitude and the phase of a THz pulse are measured. Coherent detection enables direct calculations of both the imaginary and the real parts of the refractive index without using the Kramers-Kronig relations. In this letter, the terahertz absorption spectra and the refractive indices of olive oil were measured by using terahertz time-domain spectroscopy (THz-TDS) in the frequency range extending from 0.2 to 2.5 THz. The terahertz dielectric properties of olive oil were characterized by THz-TDS, and the consistency with the known parameters was identified. A novel iterative algorithm improves the existing data extraction algorithms and further enhances the accuracy of the parameter extraction for terahertz time-domain spectroscopy. The results obtained in this study suggest that the THz-TDS method is a useful tool for vegetable oils characterization in the far infrared region. This method can be applied not only to terahertz time-domain spectroscopy but also to any kind of optical constant measurement in the time domain.