A novel hydrophobic rare earth‐based aluminum hypophosphite (AHP) was prepared using rare earth aluminate coupling agent (REA) in a ball mill with a one‐step mechanochemistry method, and used as flame retardant for epoxy resin. It has been found that RaAHP‐4 (AHP was modified by 4 wt% REA) exhibited excellent hydrophobic properties with the water contact angle of 94.58°. The effect of RaAHP‐2 (AHP was modified by 2 wt% REA) and RaAHP‐4 on the flame retardancy, thermal stability, and hydrophobic properties of EP/6RaAHP‐2 and EP/6RaAHP‐4 composites were investigated. It has been found RaAHP‐2 and RaAHP‐4 can significantly improve the flame retardant performance of EP/6RaAHP‐2 and EP/6RaAHP‐4 composites. And the peak heat release rate (PHRR) and total heat release (THR) values of EP/6RaAHP‐4 were reduced by 50.44% and 35.59% compared with pure EP, respectively. Moreover, the maximum peak value of CO production rate from EP/6RaAHP‐4 decreased by 62.64% compared with that from EP/6AHP. The excellent flame retardant effect of EP/6RaAHP‐4 composites was obtained because RaAHP‐4 changed the formation of the char residue layer during the combustion process. In comparison, the compactness, expansion degree, and carbonization quality of the char residue layer from the samples with RaAHP‐2 or RaAHP‐4 have been significantly improved, which acted as a valuable barrier for heat and mass transfer. The above results showed that the one‐step synthesis method had high potential application in the large‐scale production of hydrophobic AHP.