With Chinese medicinal herbal residues and municipal sludge as raw materials for co-composting experiment, the effect of the material ratio and addition time of Chinese medicinal herbal residues on the composting efficiency were investigated, including the change of the temperature, organic matter, ammonia nitrogen, and activity of protease. The best composting conditions were determined based on the results. The experimental results showed that the temperature of the pile was raised in the presence of 60 g Chinese medicinal herbal residues as carbon source and 300 g municipal sludge, the ammonia volatilization was reduced and the activity of protease was improved. The ammonia volatilization was reduced by 35.9% and the activity of protease was increased by 80.5% in 15 d, respectively. Especially, in the early stage, addition of Chinese medicinal herbal residues as conditioner could increase the organic matter degradation. Thus, the composting process was accelerated. Changes in the UV-visible and fluorescence characteristics of dissolved organic matter (DOM) during the co-composting process were discussed. The treatment with Chinese medicinal herbal residues improved the maturity of the compost. Moreover, phospholipid fatty acid (PLFA) method was used to estimate the microbial community structure changes. It showed that the number of microbial community such as fungi and Gram negative bacteria increased with addition of Chinese medicinal herbal residues.