The invention belongs to the field of cyclic utilization of resources and relates to a method of preparing magnesium hydroxide and aluminum hydroxide compound flame retardant which is relatively high in temperature of initial decomposition. The method comprises the steps: recovering magnesium from heavy metal sludge and refining magnesium; recovering an aluminum salt from a waste nickel catalyst; and then adding aluminum hydroxide crystal nucleus into a reaction system to inhibit homogeneous nucleation, wherein the newly generated magnesium hydroxide coats the surface of aluminum hydroxide by way of heterogeneous precipitation. The method provided by the invention effectively realizes comprehensive recovery of a valuable metal magnesium in the heavy metal sludge, and meanwhile, guarantees the high recovery rate of noble metals cobalt and nickel. The product quality is greater than or equal to 99.2%. An SEM result shows that magnesium hydroxide and aluminum hydroxide mixed particles are hexagonal tablets which have regular shapes, is good in dispersibility and small in agglomeration. The initial thermal decomposition temperature reaches over 270 DEG C, so that the magnesium hydroxide and aluminum hydroxide mixed particles are a flame retardant which is excellent in performance.