Incorporating proper amount of fly ash (FA) contributes to improve the long-term performance of steam-cured mortar. However, with the introduction of stringent environmental policies, the reserves of high-quality FAs are decreasing and the costs are increasing. In this study, phosphogypsum is used to replace part of FA to produce high-quality prefabricated components, and mechanical properties, water permeability, microstructure and environmental benefits of samples are investigated. The research results show that replacing FA with proper amount of PG can greatly increase mechanical properties of steam-cured FA mortar and improve its water impermeability. When 10% of PG is applied to the steam-cured FA mortar, the 1-d and 28-d compressive strengths of the samples increase by 11% and 5.37%, respectively, relative to the control mortar. The results of microstructure characterization show that this is due to the generation of swelling products and the increase of the reaction degree of FA. When PG and steam curing are applied in combination, FA is severely corroded and a gel phase product is generated, which contributes to increase the strength of specimen. In addition, using appropriate amount of PG also brings obvious economic and environmental benefits for prefabricated components.