This study aimed to apply the Taguchi optimization technique to determine the process conditions for producing synthetic lightweight aggregate (LWA) by incorporating tile grinding sludge powder with reservoir sediments. An orthogonal array L16(45) was adopted, which consisted of five controllable four-level factors (i.e., sludge content, preheat temperature, preheat time, sintering temperature, and sintering time). Moreover, the analysis of variance method was used to explore the effects of the experimental factors on the particle density, water absorption, bloating ratio, and loss on ignition of the produced LWA. Overall, the produced aggregates had particle densities ranging from 0.43 to 2.1 g/cm3 and water absorption ranging from 0.6% to 13.4%. These values are comparable to the requirements for ordinary and high-performance LWAs. The results indicated that it is considerably feasible to produce high-performance LWA by incorporating tile grinding sludge with reservoir sediments.