Waste activated sludge (WAS) and black liquor (BL) are the stubborn solid waste and wastewater in the industry that need high investment and operational costs for treatment. In this study, co-fermentation of WAS and BL was performed following a novel process for the production of volatile fatty acids (VFAs) concomitant with phosphorus removal and lignin recovery. BL offers alkaline liquor for WAS pretreatment, and the organic carbon in BL can be used for fermentation. The results showed that the semi-continuous fermentation test at pH 10 and the addition of 800 mg/L of Mg2+ were the optimal conditions for the production of VFAs (approximately 15,000 mg/L) and P removal (≈94%). Additionally, Mg2+ was suited to remove P due to the weak adsorption of Mg2+ by BL under alkaline conditions. Moreover, the composition of VFAs was affected by the pH, for example, high ratios of acetate and propionate were obtained under conditions of high and low pH, respectively. The dominant functional bacteria of Alkalibacterium, Propionibacterium, Proteiniphilum, and Tessaracoccus were found through the analysis of microbial diversity to be responsible for the production of VFAs. The bioconversion of small molecular lignin was also demonstrated through the characterization analyses. Co-fermentation was suggested as an economic and eco-friendly strategy for the treatment and resource utilization of WAS and BL via the overall assessment of the technical process.