Abstract: Global challenges such as soil degradation and water scarcity necessitate sustainable agricultural practices, particularly in regions where saline water is increasingly used for irrigation. This study investigates the effects of four compost treatments, including surface-applied mulch compost (MC), Johnson–Su biologically active compost incorporated into soil (JCI), mulch compost incorporated into soil (MCI), and no compost as control (NC), on soil fertility, microbial activity, and Capsicum annuum (chili pepper) growth. Greenhouse experiments were conducted using soil from two different sites (New Mexico State University’s (NMSU) agricultural research plots and agricultural field-testing site at the Brackish Groundwater National Desalination Research Facility (BGNDRF) in Alamogordo, New Mexico) and two irrigation water salinities (brackish at ~3000 µS/cm and agricultural at ~800 µS/cm). The Johnson–Su compost treatment demonstrated superior performance, due to its high soil organic matter (41.5%), nitrate (NO3−) content (82.5 mg/kg), and phosphorus availability (193.1 mg/kg). In the JCI-treated soils, microbial biomass increased by 40%, and total microbial carbon reached 64.69 g/m2 as compared to 64.7 g/m2 in the NC. Plant growth parameters, including chlorophyll content, root length, and wet biomass, improved substantially with JCI. For instance, JCI increased plant height by 20% and wet biomass by 30% compared to NC treatments. The JCI treatment also effectively mitigated soil salinity, reducing Na+ accumulation by 60% and Cl− by 70% while enhancing water retention and soil structure. Principal Component Analysis (PCA) revealed a distinct clustering of JCI treatments, demonstrating its ability to increase nutrient retention and minimize salinity stress. These results indicate that biologically active properties, such as fungi-rich compost, are critical to providing an effective, environmentally resilient approach for enhancing soil fertility and supporting sustainable crop production under brackish groundwater irrigation, particularly in regions facing freshwater scarcity.
