Abstract: A novel method was developed to enhance the utilization rate of steel slag (SS). Through treatment of SS with phosphoric acid and aminopropyl triethoxysilane (KH550), we obtained modified SS (MSS), which was used to prepare MSS/wood–plastic composites (MSS/WPCs) by replacing talcum powder (TP). The composites were fabricated through melting blending and hot pressing. Their mechanical and combustion properties, which comprise heat release, smoke release, and thermal stability, were systematically investigated. MSS can improve the mechanical strength of the composites through grafting reactions between wood powder and thermoplastics. Notably, MSS/WPC#50 (16wt% MSS) with an MSS-to-TP mass ratio of 1:1 exhibited optimal comprehensive performance. Compared with those of WPC#0 without MSS, the tensile, flexural, and impact strengths of MSS/WPC#50 were increased by 18.5%, 12.8%, and 18.0%, respectively. Moreover, the MSS/WPC#50 sample achieved the highest limited oxygen index of 22.5%, the highest vertical burning rating at the V-1 level, and the lowest horizontal burning rate at 44.2 mm/min. The formation of a dense and stable char layer led to improved thermal stability and a considerable reduction in heat and smoke releases of MSS/WPC#50. However, the partial replacement of TP with MSS slightly compromised the mechanical and flame-retardant properties, possibly due to the weak grafting caused by SS powder agglomeration. These findings suggest the suitability of MSS/WPCs for high-value-added applications as decorative panels indoors or outdoors.