Abstract: The sludge produced by rural rivers desilting is large in volume and high in organic matter content, which causes significant pollution if not well disposed. Industrialized agricultural seedling raising requires a large amount of nutritional soil, which leads to the degradation of cultivated land if those soil are from the farmland. In this study, the microorganisms were used for fermenting sludge to produce the seedling raising substrate, instead of using nutritional farm soil. By changing temperature and water content in the fermentation process of the sludge, physical and biological features of the substrate produced by fermentation, and the biological characters, physiological feature and resistance of the watermelon seedlings raised by the substrate were assayed for determine best microbial strains for fermenting substrate. The results showed that, compared to control treatment, the microbial treatments increased the fermentation temperature and decreased water content of the substrate (P<0.05), but no statistical difference was found between microbial treatments. The highest temperatures assayed in the piles in fermentation process all were lower than 60℃, and the duration when temperature higher than 50℃ all were shorter than 9 days. The substrates were well fermented while the piles temperature decreased to room temperature. Assaying the physical features of the substrates demonstrated that the microbial fermentation improved the physical and biological properties of the substrate. Among the microorganisms, Trichoderma harzianum T83 (T83) and Bacillus amyloliquefaciens IAE (BIAE) showed the best performance. Compared to the control treatment, bulk density, maximum water holding capacity, total porosity, capillary porosity and aeration porosity of the T83 treatment decreased by 25.52% and increased by 64.25%, 52.65%, 45.05% and 56.11%, respectively, while in BIAE treatment decreased by 27.78% and increased by 101.17%, 45.43%, 61.43% and 38.14%, respectively (P<0.05). Populations of total bacteria and fungi were found 1.94 times and 4.55 times respectively higher than control treatment in T83 treatment (P<0.05), and populations of total bacteria was 2.33 times higher than control treatment in BIAE treatment (P<0.05). Populations of Fusarium spp. and intestinal flora, compared to control treatment, were decreased by 70.97% and 82.31%, respectively in T83 treatment, and decreased by 81.29% and 77.70% in BIAE treatment (P<0.05). Compared to the control treatment, the height, ground fresh weight, root fresh weight, ground dry weight, root dry weight, stem diameter, chlorophyll content, root activity, population of the rhizospheric fungi, bacteria and actinomycetes of watermelon seedlings of the T83 treatment increased by 66.85%, 38.12%, 70.24%, 66.03%, 74.07%, 34.23%, 54.93%, 43.13%, 111.19 times, 1.63 times and 4.38 times, respectively and for BIAE treatment, the increases were by 80.40%, 38.49%, 76.19%, 64.74%, 100.00%, 54.88%, 67.26%, 46.40%, 67.26%, 2.60 times, 2.94 times and 5.66 times, respectively (P<0.05). Contents of malondialdehyde in roots were significantly decreased (P<0.05) in T83 and BIAE treatments, and T83 and BIAE treatments were decreased by 70.62% and 23.71% respectively as compared to control treatment. The activities of catalase and superoxide dismutase in watermelon seedlings leaves were significantly increased (P<0.05) as compared to control treatment. The sludge could be fermented with the fungus T. harzianum T83 and bacteria B. amyloliquefaciens IAE to produce watermelon seedling raising substrate. The two microbial strains can significantly increase properties and the quality of sludge substrate, improve physiological features and resistance of raised seedling, and promote growth of watermelon seedlings, which provide a high added value way for the sludge agricultural utilization.