Recycling fly ash (FA) and furnace bottom ash (FBA) help with reducing greenhouse gas emissions, conserving natural resources, and minimizing waste accumulation. However, research on recycling FBA is progressing more slowly compared to FA. This research aims to investigate the combined use of FBA as a replacement for both fine aggregate and cement and its influence on the performance of mortar. The findings indicated that incorporating 25% FBA as a fine aggregate replacement and 10% or 20% ground FBA (GFBA) as a cement replacement significantly enhanced compressive strength after 28 and 56 days. Flexural strength was comparable to control mortar at 28 days and superior at 56 days. However, increasing the FBA content beyond 25% as a fine aggregate replacement reduced workability and increased porosity, which negatively affected mechanical performance and water absorption. Microstructural analyses revealed denser and more compact structures in the mortar with combined FBA replacement for both fine aggregate and cement, specifically 25% as a fine aggregate replacement and 10% and 20% as cement replacements. Optimal performance was noted in mixtures with Ca/Si and Ca/Al ratios within the ranges of 1.8–1.5 and 0.24–0.19, respectively. Trace element leaching analysis has not shown significant differences between GFBA, FA, and OPC. Regarding environmental impact assessment, using FBA as a fine aggregate replacement did not show a significant reduction in CO2 emissions, but replacing cement with FBA reduced emissions remarkably. Generally, using FBA as a replacement for both fine aggregate and cement in mortar enhances compressive and flexural strengths at optimal levels, promotes sustainability by reducing landfill waste and CO2 emissions, and supports cleaner production practices despite some workability challenges.