Recycling of waste cotton fabrics (WCFs) and converting them into high value-added products have not been developed. In this study, a novel and green process was developed for the preparation of microcrystalline cellulose (MCC) from WCFs by the catalytic hydrolysis of phosphotungstic acid (H3PW12O40, HPW). The effects of hydrolysis conditions such as HPW concentration, reaction temperature, reaction time, and solid/liquid ratio were investigated. The optimum process conditions were determined as follows: HPW concentration of 3.47 mmol/L, a solid/liquid ratio of 1:40, reaction temperature of 140 °C, and reaction time of 6 h. The yield of MCC prepared was as high as 83.4% and exhibited better performance than commercial MCC such as a higher crystallinity (85.2%), smaller particle size (20.37 μm), and narrower particle size distribution (72.75%, 8.68–31.1 μm). Furthermore, the HPW could be extracted and recycled easily with diethyl ether for five times and used to prepare MCC with a high yield and crystallinity index.