Water polyurethane (WPU) with flame retardant and hydrophobic properties was synthesized by in situ polymerization using 9,10-dihydro-9-oxa-10-[N, N-bis-(2- hydroxyethyl-amino-methyl)]-10-phosphaphenanthrene-10-oxide (DOPO-DAM) as flame retardant modifying agent, hydroxyl-terminated polydimethylsiloxane (PDMS) as hydrophobic modifying agent. FT-IR and TEM characterized the chemical structure and morphology of modified WPU. The effects of DOPO-DAM and PDMS dosage on the performance of modified WPU were investigated. The tensile strength for the modified WPU films first increased and then decreased with increasing of DOPO-DAM dosage. Incorporating DOPO-DAM and PDMS into WPU significantly enhanced flame retardancy, as evidenced by the reduction in peak heat release rate, total heat release rate, total smoke production, effective heat of combustion, and carbon dioxide production rate. The scanning electron microscopy coupled with energy-dispersive X-ray spectroscopy confirmed that the good flame retardancy of modified WPU was due to the synergistic effect of P, N and Si elements. Afterward, modified WPU as a finishing agent was coated on polyester fabric. The experimental results of limiting oxygen index (LOI) and the vertical burning test indicated that when the dosage of DOPO-DAM was 6 wt% in modified WPU, after-flame time, after-glow time, damage length and LOI value of the coated polyester fabric were 7.0 s, 0.0 s, 8.5 cm and 26.2%, respectively. In addition, with the increase of PDMS dosage in modified WPU, the water contact angle of the coated fabrics showed an upward trend and remained stable. The addition of PDMS not only improved the flame retardancy of the coated fabric but also had a good effect on hydrophobicity.