The invention discloses a method of reducing the town sewage and sludge and managing the resource belonging to solid waste treating technical field. The method is provided with following steps: diluting and breaking the dehydrated mud cake by sodium hydroxide solution, and stripping a large amount of organic matter in sludge, getting concentrated sludge and supernatant fluid by centrifugation; dehydrating the former after neutralization and regulation; obtaining a concentrated liquid and a filtered liquid after wind filtering and secondary ultrafiltration of the latter. The supernatant fluid contains lots of sodium hydroxide, and is reflowed to cycle. After disposal, the rate of water content of the dehydrate mud cake is reduced to about 70%, lowering 50% compared to the organic matter content before disposal, and lowering 2/3 of total mass. The concentrated liquid after ultrafiltration is mainly composed of organic matter with a large molecule such as humic acid, and with a low content of heavy metal. The pathogenic bacteria is deactivated which accords to the ''fertilizer utilization criteria'' of Ministry of Agriculture to produce a safe and efficient liquid organic fertilizer. The invention is suitable for the residual active sludge generated from the town sewage treating factory, for digesting the sludge and reducing the composite sludge and for managing the resource.