To facilitate the recycling of waste solids in cement-based materials, plastic-rubber (PR) compound modified mortar (PRM) samples and recycled steel fiber (RSF)-reinforced plastic-rubber modified mortar (PRSRM) samples were prepared and tested to evaluate their mechanical and drying shrinkage properties. PR compound particles, with a mesh size of #8, replaced the natural aggregates with four volume percentages: 2%, 5%, 7.5%, and 10%. The fiber was added with a constant volume fraction of 0.2%. Accordingly, control mortar, PRM mortar with different PR replacement ratios, and PRSRM mortar with RSF were prepared and tested. A numerical splitting tension test model was also established based on the two-dimensional Distinct Element Method (DEM) to investigate the crack initiation and propagation mechanism of the PRM samples. The mechanical test results indicated that the addition of RSF enlarged the compressive strength by 14–27% PRM samples. Meanwhile, both PR and RSF improved mortar flexural behavior by increasing the fracture energy. The SEM image of a fracture surface and DEM simulation showed the crack propagation path was changed by PR particles due to its lower stiffness. Meanwhile, the 7-days drying shrinkage length change was reduced by about 25% due to the PR’s porous structure and water-retaining ability. Overall, the sustainable material design with the combination of PR and RSF would promote the full-recycling of waste tires in cement-based materials.