This study analyzed environmental impacts and economic feasibility to evaluate whether recycling fly ash, which has rarely been addressed in previous studies, as a raw material for lightweight aggregates can be a sustainable waste management alternative. This study presents a comparative analysis of three disposal scenarios: landfill disposal, recycling as cement raw material, and recycling as lightweight aggregate raw material. Nine environmental impacts were assessed through life cycle assessment (LCA): acidification, global warming, eutrophication, photochemical oxidation, stratospheric ozone depletion, human toxicity, freshwater aquatic ecotoxicity, marine aquatic ecotoxicity, and terrestrial ecotoxicity. The results showed that the landfill disposal scenario posed the greatest threat to global warming, eutrophication, and marine aquatic ecotoxicity, while the cement scenario had the greatest impact on stratospheric ozone depletion, human toxicity, and other ecotoxicity items while recycling as lightweight aggregate showed the lowest environmental impacts in most items except acidification and photochemical oxidation. Life cycle costing (LCC) analysis was also performed to compare the economic aspects of each scenario. The lightweight aggregate scenario is more energy-intensive and costly, but it has significant economic benefits due to the significant revenues from the products produced. Therefore, even though the cost is high, this scenario is considered economically advantageous. This study highlights that recycling fly ash into lightweight aggregate reduces environmental impacts, provides economic benefits, and is a better alternative to landfilling and recycling cement raw materials. It will also contribute to promoting sustainable practices of fly ash recycling.