Lime-based mortar is one of the most widely used decorative materials due to its environment-friendly and healthy nature since ancient times. In this study, decorative rendering mortar was prepared through partially replacing white cement by hydrated lime. Effects of hydrated lime on mechanical properties, microstructures and efflorescence behavior of decorative rendering mortar were investigated. Results showed that the decorative rendering mortar with required physical properties could be obtained when less than 50% of white cement replaced by hydrated lime. Newly generated Ca(OH)2 from cement hydration was easy to be carbonated in-situ due to looser structures of cement-hydrated lime system with high porosity. Rapid carbonation of newly generated Ca(OH)2 would also promote the cement hydration. Carbonation and the in-situ formed carbonation products decreased the soluble Ca(OH)2 and blocked the migration channel in the early stage, hence refined large pores into small pores and inhibited the efflorescence.