In this study, the effects of white-rot fungus (Coriolus versicolor) on the properties of high density polyethylene (HDPE)/wood flour/paper sludge composites were examined. In addition, the effectiveness of using coupling agent on the durability of decayed and undecayed WPCs was investigated. Two different types of sludge materials, namely paper making waste water sludge (PS) and ink-eliminated sludge (IES) were used. The mechanical properties, morphology, and water absorption of fabricated composites were investigated. At a similar wood flour loading, except for modulus of elasticity, the fungi treated composites showed lower mechanical properties (such as modulus of rupture and unnotched Izod impact strength), and higher water absorption compared to untreated composites. According to the results, addition of wood flour decreased the resistance of the composites to moisture and fungal environment. The exposure of the composites to a 4-cycle (2, 24, 48 and 72 h) water immersion caused serious damage to the interfacial adhesion between wood flour and polymer matrix due to contraction and swelling stresses developed during the cyclic exposure. The detrimental effect of fungal treatment on the water uptake of the composites could be explained by the degradation of lignin which made the cellulose content more accessible. Further, it makes chains of cavities that accelerate water absorption. However, the weight losses of all cases of treated composites were low (less than 2.5%), while PS filled composites were more susceptible to white-rot fungi. The addition of coupling agent during the compounding of wood flour and HDPE prevented the colonization and proliferation of fungus on the surface of the composites, and had an advantageous effect on the water uptake and mechanical properties of both treated and untreated composites.