Applying river sludge in agriculture is an effective way of recycling the beneficial substances it contains. Polyacrylamide (PAM) is widely used as a sludge dewatering flocculant and soil amendment agent. The objectives of this study were to determine the effects of PAM on sludge and to ascertain whether the PAM-treated sludge can be used as a planting substrate. Pot cultivation, infiltration, and leaching experiments were conducted under sludge treated with different amounts of PAM, and Chinese cabbage was also grown in pot experiments. We evaluated the changes in the nutrient and enzyme activities, aggregate stability, permeability of the sludge, the ability of the sludge to preserve water and nutrients, and Chinese cabbage growth. The results showed that the physiochemical characteristics of the sludge were improved by applying PAM. The pot experiment showed that the contents of alkaline hydrolysable N, NO3−, and NH4+ in PAM-treated sludge were increased significantly (p < 0.05) by PAM additions, and the optimum Chinese cabbage growth occurred with applications of 900 mg kg−1 and 1350 mg kg−1 PAM. The cultivation experiment showed that the catalase, alkaline phosphatase, and invertase activities were improved by adding PAM. The increased available nitrogen content in the sludge increased with the addition of PAM mainly because PAM provided a suitable micro-ecological environment for microorganisms to increase enzyme activity, which thus accelerated nutrient turnover. The infiltration and leaching experiments showed 900 mg kg−1 PAM provided the optimal permeability and aggregate stability, and better water and nutrient preserving effects. PAM improved the aggregate stability of river sludge by absorbing sludge particles to form larger aggregates, which improved the permeability, water, and nutrient preserving capacity of the sludge. Considering the improvement effects of PAM on the available nitrogen content, enzyme activity, aggregate stability, and water holding capacity of sludge while maintaining Chinese cabbage growth, we found that the 900 mg kg−1 PAM application was the best dosage.