Revegetation in arid and semi-arid regions is restricted by soil water shortage. Improvement of sandy soil properties, especially for soil water related properties, is therefore vital for successful revegetation. In this study, montmorillonite-enriched siltstone (MS), a type of fine particle soil material, was used to improve sandy soil in a field experiment with four volume proportions: 0% (M-0%), 25% (M-25%), 75% (M-75%), and 100% (M-100%) of MS, which was then planted with alfalfa (Medicago sativa) for 3 years. The objective was to investigate the improvement effect of MS on the physical properties of sandy soil and its support for plant growth. The results showed that the addition of MS significantly increased the soil physical quality (SPQ) indicators, such as available water capacity (AWC), which increased from 7.39% (M-0%) to 10.18% (M-100%), while hydraulic conductivity (Ks) decreased by 34.1% (M-25%) and 57.5% (M-75%), and bulk soil air capacity (ACB) decreased by 12.6% (M-25%) and 39.4% (M-75%). These results were mainly related to the high content of fine particles in MS, such as montmorillonite, a 2:1 clay mineral. The average profile soil water content (SWC) increased from 9.20% to 14.08% (M-25%) and 24.62% (M-75%). The temporal stability of SWC was also significantly increased by MS addition, while drainage was significantly decreased. Both above-ground biomass (ABG) and water use efficiency (WUE) increased by approximately two times in M-25% and M-75% in 2015 and five times in M-25% and M-75% in 2016. This result verified the positive effect of MS addition on sandy soil properties. However, more than 75% MS addition (such as M-100%) in sandy soil decreased ACB to less than 15% and decreased ABG by 75.3% compared with that of M-75%. This study gives a new strategy for improving sandy soil using local finer materials with a high content of montmorillonite. Considering the improvement effects and engineering cost, a 25% volume proportion of MS was recommended.