Reservoir sludge can be organo-modified by a cation-exchange reaction and then employed as a substitute for a portion of fine aggregates in cement mortars. The chemical structure and properties of organo-modified reservoir sludge (OMRS) were first analyzed by conducting a series of TGA, FTIR, EDS and XRD measurements. The microstructures of cement mortars containing different amounts of OMRS particles were then characterized by using MIP, EDS and a water contact angle goniometer. In addition, the effects of OMRS particles on the compressive strength and permeability of cement mortars were evaluated. Experimental results indicate that the hydrophobic OMRS particles randomly distributed in cement mortars contribute to the decrease in capillary porosity and the increase in water diffusion barriers. As a result, an adequate dosage of OMRS particles to give a higher compressive strength and a lower permeability ratio for cement mortars is proposed here.