Micaceous residual soil is prevalent in the tropical regions of southern China. However, it is generally deemed unsuitable as a construction material in earthen structures due to its inferior engineering properties. Despite previous research into stabilizing micaceous soils, there remains an urgent demand for sustainable alternatives to traditional stabilizers to achieve circularity. Furthermore, uncertainties regarding the long-term performance of stabilized soils under hydraulic conditions complicated their use in flood-susceptible areas. To provide a sustainable and low-cost solution for creating stabilized soil for earthen structures in waterlogged regions, this study explores the impact of coir fiber and fly ash, agricultural and industrial byproducts, on the hydrophobicity, durability, and water stability of micaceous residual soil from Hainan, China. The study commenced with the preliminary mechanical tests to ascertain the optimal dosage of coir fiber and fly ash, which were determined to be 1% and 15%, respectively. Then, hydrophobicity, durability, and disintegration tests are conducted on fiber-reinforced fly-ash-treated soil under various stabilization conditions. The microstructural evolution of the soil fabric in response to the stabilization process was meticulously traced using scanning electron microscopy and energy-dispersive spectroscopy. Results indicated that the addition of fly ash could impart severe and persistent water repellency to the studied soil, with the contact angle improving from 16.7° to 102.9°, and the water drop penetration time significantly extending from 3.6 s to approximately 600 s. While incorporating coir fibers into the cemented soil presented negligible improvement on soil hydrophobicity, it markedly enhanced the soil’s durability, mitigated moisture-related deterioration and decelerated disintegration. Notably, the strength residual ratio of fiber-reinforced cemented sample maintained higher than 90% even after 20-day water immersion, and the disintegration rate decreased by 57% compared to unreinforced sample. Microstructural analysis revealed that bonding, friction, and interlocking among fibers, hydration products, and soil particles are the main contributors to the stable and robust matrix, ensuring improved mechanical behavior and longevity of micaceous residual soil. This study provides an innovative method for utilizing waste byproducts in stabilizing micaceous residual soil, as a viable option for earthworks in rain-soaked or flood-prone areas.