In recent years, solid waste iron sludge (red mud, iron-containing water treatment residues, and iron-rich sludge) has been widely used to remove pollutants in the water environment; however, the difficulty of separating powdered iron sludge from the water environment media makes it impossible to apply it as a water treatment material on a large scale, and preparing iron sludge into magnetic materials that are easy to be separated is one of the effective strategies to solve this bottleneck. According to the existing research on iron sludge-based magnetic materials at home and abroad, the preparation methods of magnetic materials using iron sludge as raw materials are summarized, including a series of methods, including the thermal decomposition method, hydrothermal and solvothermal method, co-precipitation method, reduction roasting method, and carbonization method. Additionally, it is pointed out that the currently commonly used preparation methods are thermal decomposition, hydrothermal and solvothermal, and co-precipitation. In addition, the performance and application of these magnetic materials as adsorbents or catalysts in water treatment are also summarized. In general, iron sludge-based magnetic materials can better absorb heavy metals and organic pollutants in water. The main adsorption mechanisms are complexation, electrostatic interaction, reduction, cation exchange, and precipitation. As a catalyst, it can efficiently oxidize and degrade organic pollutants by generating strong oxidizing substances:SO4-· and ·OH. Although there have been many studies on the preparation and application of iron sludge-based magnetic materials, because the raw material iron sludge contains many impurities, the magnetic materials prepared from iron sludge also have certain impurities. Therefore, it is still necessary to strengthen the research on the safety of iron sludge-based magnetic materials in the future to further ensure that they can be used as environmentally friendly materials for water environment restoration.