<p>The present study comprehensively investigates the influence of varying nano clay content on the Soil Water Retention Curve (SWRC) of untreated and lime-treated highly compressible soil (HCS). The SWRC behavior is analyzed and interpreted alongside results from Mercury Intrusion Porosimetry (MIP), X-ray Diffraction (XRD), and Field Emission Scanning Electron Microscopy (FESEM) analyses. Results show that adding 1% nano clay to HCS maximizes water retention capacity and suction pressure by increasing the proportion of macropores. In contrast, lime treatment reduces water retention due to pozzolanic reactions forming cementitious compounds (CSH and CASH). However, incorporating nano clay into lime-treated soil reverses this effect, enhancing water retention owing to nano clay’s high specific surface area. In terms of pore structure, nano clay addition to untreated HCS increases micropores, while lime treatment promotes macropores. The highest macropore fraction occurs with 1% nano clay in untreated HCS and 2% nano clay in lime-treated HCS. XRD and FESEM analyses confirm that nano clay addition alters the mineralogy and microstructure of HCS changes that are more prominent in lime-treated HCS–nano clay mixes, showing clear evidence of new cementitious compound formation. These structural transformations effectively explain the observed variations in water retention, matric suction, and pore size distribution across different soil mixtures. The SWRC remains a crucial parameter in geotechnical and geoenvironmental engineering, as it defines the relationship between soil suction and water content, influencing slope stability, and guiding the design of landfill covers, earthen dams, and drainage systems to manage infiltration and seepage.</p>