Optimal phosphorus (P) levels in lateritic soils are key for sustainable crop production. However, the effect of various fertilizers on soil phosphorus pools, crop phosphorus uptake, and crop yields remains unclear. This study investigated the effect of different fertilization strategies on plant growth and soil P fractions, and determined the contribution of biotic and abiotic factors to insoluble P release. We found that resin‐P, NaHCO3‐P, and NaOH‐P represented the primary active P pools in the lateritic soil, contributing 59.8% of the total P in conventional fertilization (CF), with Fe/Al‐bound P (NaOH‐P) being 42.1% of the active P pool. Combining Nangbowang (NBW), a microbial organic fertilizer inoculated with Bacillus subtilis (≥ 2×107 million CFU g‐1), with reduced chemical fertilizer (NBW+CR) increased soil P availability and promoted the release of Fe/Al‐bound P and residual‐P, decreasing the Fe/Al‐bound P to 21.7%. Soil biological factors mainly influenced the P transformation process. With the consumption of soil active P, NBW bio‐organic fertilizer enhanced the niche filtration of P solubilizing bacterial communities (Gemmatimonadetes, Sphingomonas, and Halomonas), altered the soil functional microbial community structure, and promoted P form conversion. The NBW + CR treatment also enhanced nitrogen and P nutrient uptake by pepper plants (Capsicum annuum), with increased total P concentrations in pepper fruit and stem, and improved crop yield. NBW increased active P concentrations in the soil and promoted Fe/Al‐P release and transformation by impacting autochthonous microbes involved in the conversion of P chemical species. These results can guide the improvement of P availability and release in lateritic red soils using bio‐organic fertilizer.