This study evaluated the stabilization of dam sediment using a blended binder of eucalyptus wood ash (EWA) and cement for cost-effective and environmentally safe pavement material development. The sediment is classified as a sandy lean clay. EWA, a pozzolanic byproduct, was used as a partial cement replacement to enhance the material's geotechnical properties and reduce environmental impact. The optimized mixture showed a 12-fold increase in unconfined compressive strength (1.4 MPa) and a California bearing ratio of 70%, meeting Thailand Department of Highways' specifications for subbase and base layers. The microstructural analysis confirmed the formation of calcium silicate hydrates, improving durability and reducing weight loss by 30% under wetting-drying cycles. Leachate tests showed that heavy metal concentrations remained within regulatory limits. EWA also reduced costs by 2.6 times compared to conventional stabilization methods, highlighting its potential for pavement applications.