Phyllite soil and red clay belong to the soils that negatively impact the engineering performance of railway subgrade and may cause subgrade bulges, uneven subgrade settlement, and other subgrade distresses. In order to make full use of these two soils, a collaborative improvement plan was proposed. A series of tests were conducted to analyze the synergistic effects of lime and red clay on the improvement of phyllite soil. The tests included the no loading swelling ratio, swelling pressure, consolidation, and direct shear tests. Additionally, scanning electron microscopy was used to investigate the role of lime and red clay in soil improvement. The test results show that a red clay ratio of 60% + lime content of 3% is the optimal composite improvement scheme. The scheme led to a 93% reduction in the no loading swelling ratio and an 88% reduction in swelling pressure. Additionally, cohesion, the internal friction angle, and the compression modulus increased by 345%, 73%, and 373%. Red clay and lime had weak synergistic improvement effects on the no loading swelling ratio, the swelling pressure, and the internal friction angle of phyllite soil, that is, the synergistic improvement effect of red clay and lime was less than the sum of the single improvement effect but greater than the single improvement effect. Red clay and lime had a strong synergistic improvement effect on the cohesion and the compression modulus of phyllite, that is, the synergistic improvement effect of red clay and lime was greater than the sum of the single improvement effect. The microstructure analysis test results show that red clay can fill the pores of phyllite soil and improve its immediate strength. Through hardening and cementation, lime can enhance the strength of phyllite soil as well as address the issue of the reduced engineering properties of phyllite soil and red clay when exposed to water. Red clay and lime promote each other’s reactions and have a synergistic improvement effect on phyllite soil.