The application of domestic sewage sludge (SS) may affect plant growth and soil quality through altering nutrient availability. However, the effect of SS application on the plant–soil system in sandy soils is poorly understood. In this study, we established SS application treatment plots (SL, 25 t ha−1) and control treatment plots without sewage sludge application (CK, 0 t ha−1). SS was applied to the soil surface of a Mongolian pine (Pinus sylvestris var. mongolica) plantation in Horqin Sandy Land, Inner Mongolia, China, to assess its potential effects on plants and soil. We analyzed tree growth performances (tree height, basal diameter, and diameter at breast height), understory traits (species diversity, coverage, and aboveground biomass), soil physical and chemical parameters (nutrient content, dissolved organic carbon, soil water content, bulk density, pH), and proxies of ecosystem services (soil organic carbon and total nitrogen stocks). The results showed that SS addition not only significantly increased soil nutrient contents, but also markedly enhanced aboveground productivity and plant coverage. Specifically, SS addition decreased soil bulk density and increased concentrations of soil organic carbon, total nitrogen, and total phosphorus and mineral nitrogen, and it also increased soil carbon and nitrogen stocks. Furthermore, the addition of SS significantly increased soil dissolved organic carbon contents and enhanced the fluorescence intensities of dissolved organic carbon components (humic acid-like and UV fulvic acid-like) in the topsoil (0–5 cm). This study provides evidence that SS is an acceptable, and possibly preferred organic fertilizer for improving the soil quality and tree–grass growth of Mongolian pine plantations.