In this study, a method to prepare water-resisting mortars by incorporating hydrophobic incineration ashes is reported. Bottom ash is the by-products of municipal solid waste incineration with limited recycling options due to harmful contaminants. To decrease the environmental risk of bottom ash and provide an economical and green route to reuse it, a wet chemistry method is applied to prepare hydrophobic bottom ash and investigate its potential to improve transport properties of concrete. The functionalization of fine bottom ash (<0.125 μm) using stearic acid provides hydrophobic nature to the particles along with improved leaching properties. At an optimum addition of 4% stearic acid, the bottom ash present a water contact angle of 141° and can be classified as hydrophobic. The influence of functionalized bottom ash on the cement hydration, mechanical properties, water absorption and wetting property of the water resisting mortar is investigated. Results show that the up to 30% of the binder can be replaced by hydrophobic bottom ash as it decreases the capillary water absorption rate and chloride penetration depth by 57% and 65%, respectively. The samples containing hydrophobic bottom ash show better mechanical properties as compared to the samples made with untreated bottom ash. The environmental assessment shows that the mortars containing functionalized BA are environmentally friendly because of the dilution effect and immobilization potential of the hazardous material into the cementitious matrix. Results show that the proposed method is a facile and efficient way to change bottom ash into hydrophobic powders, which leads to more environmentally friendly water-resisting mortar.