A microstructural study of Coode Island Silt (CIS), a soft silty clay from the Melbourne area of Australia, stabilised with slag lime is reported. Slag lime is a blend of 80–85 wt% slag, 15 wt% hydrated lime, Ca(OH)2 and 3–8 wt% gypsum CaSO4.2H2O, and is typically used for soil stabilisation in roading applications. The morphologies of several homogeneous mixtures of slag lime and CIS were studied by Scanning Electron Microscopy (SEM) and X-Ray Diffraction (XRD), which indicated the formation of the cementitious phases calcium carbonate, calcium silicate hydrate, calcium aluminium silicate hydrate, and calcium aluminium silicate carbonate. The progress of the CIS-slag lime reactions was also investigated by pH measurements. Slag lime was found to very actively promote pozzolanic reactions with CIS, shown by SEM to form crystalline reticular calcium silicate hydrate and other cementitious products. The most effective pozzolanic reactions occurred in a composite containing 12.5 wt% slag lime with CIS and contained the cement mineral ettringite, contributing to its high strength. These composites constitute a new class of materials with excellent potential for construction applications.