In this study, polystyrene (PS)-encapsulated magnesium hydroxide-microencapsulated red phosphorus (MHRP) was prepared by in situ polymerization of styrene on the surface of MHRP in a high speed mixer. The encapsulated MHRP flame retardant was successfully applied in the fire resistance to HIPS by melt blending in a corotating twin-screw extruder. The effects of PS-encapsulated MHRP on the properties of HIPS composites were studied by mechanical, thermal, and combustion tests (HBR, LOI, UL-94, and cone calorimetry). The experimental results showed that compared to the composites containing untreated MHRP, the thermal, mechanical, and flameretardant properties of those containing PS-encapsulated MHRP were found to be prominently improved. This improvement was mostly attributed to an effective dispersion of the encapsulated filler and a good interfacial compatibility between the filler and the matrix.