Fly ash (FA) and flue gas desulphurization gypsum (FGD) were blended in proportion into a new composite binder added with cement, lime and some modifiers. In the paper, the mix proportions of composite binder with low-quality FA and FGD were studied. FA-FGD more than 80% with FA:FGD 3:2 was suggested for mortar, plastering and slurry while FA:FGD 2:1 and FA-FGD 30~40% was recommended for middle-strength concrete. Hydration process of typical mixtures of FA-FGD paste was investigated through SEM and XRD tests. The conclusion could be made that FA showed much improved pozzolana activity especially at early ages due to the existence of FGD as an ideal sulfate activator, which also crystallized later to strengthen the hardened paste. The microstructure of hydrated FA-FGD paste was more excellent than that of neat cement stone or one blended with the same percentage of pure FA.