It was a woman he knew is perfectly good, but a different construction from she was a woman he knew: It there is not a gender-neutral personal pronoun* but a dummy or presentative subject: it can even be used with plurals (Who was at the door? It was everybody from next door), because it doesn't refer.
There is no universally accepted gender-neutral personal pronoun in English; I prefer they, but some people object to it. But in this context, the gender is known, and I think all English speakers would use she (unless they used the presentative it).
*It is rarely used to refer to people, except (by some) to babies whose sex they don't know (Others object to this usage).