The degradation of high-altitude hydropower reservoir slopes limits slope stability and ecological restoration. This work proposes phosphate-enhanced co-composting, which transforms municipal sludge and forestry residues (sawdust and fallen leaves) into a high-quality soil amendment suitable for degraded topsoils in the Shuangjiangkou reservoir area. The co-composting process was optimized by adjusting the carbon/nitrogen (C/N) ratio, bulking agent composition, and the phosphate dosage. A C/N ratio of 25 with a sawdust–leaves composite produced stable thermophilic conditions, increased microbial enzymatic activity, accelerated organic matter decomposition, and minimized ammonium loss. Moderate phosphate addition of 0.6 mmol P/g dry solid reduced composting time to 16 days and enhanced nutrient retention. Field application of the mature compost at a 9% addition rate significantly improved the treated soils, increasing organic matter from 5.20 to 44.53 g/kg and decreasing bulk density from 1.40 to 1.31 g/cm³, while nutrient contents and heavy metal concentrations met regulatory requirements. The phosphate-enhanced co-composting strategy provides an efficient and safe solution for soil amendment in high-altitude hydropower reservoir regions, particularly contributing to carbon neutrality by promoting organic carbon stabilization, reducing waste-related emissions, and enhancing soil carbon sequestration. These findings demonstrate a low-carbon pathway linking waste management, ecological restoration, and renewable energy infrastructure development.