The invention belongs to the field of cyclic utilization of resources and relates to a method for preparing a magnesium hydroxide-aluminum hydroxide composite flame retardant through recovering/extracting magnesium from heavy-metal sludge, recovering an aluminum salt from water supply sludge, and then, carrying out mixing, precipitating and modification. According to the method, the comprehensive recovery of valuable metal, i.e., magnesium from the heavy-metal sludge is effectively achieved, and meanwhile, high recovery rate for noble metals, i.e., cobalt and nickel is guaranteed. The rate of recovery of aluminum from the water supply sludge can reach 85% or more. Magnesium hydroxide particles in the prepared composite flame retardant are of hexagonal flakes, and the pyrolysis temperature reaches 358 DEG C, so that the flame retardant is excellent in performance.