Lime mortar, a sustainable substance, was utilised in historical architecture and offered thermal comfort to occupants owing to its insulating characteristics. Cement mortar has supplanted conventional lime mortar in modern construction due to its superior compressive strength, workability, rapid setting time, reduced shrinkage, and enhanced water resistance. This study aims to improve the thermo-physical qualities of lime mortar to render it a feasible choice for modern construction. To alter the characteristics of the lime mortar, stearic acid (at 10%, 15%, and 20% by weight) and alccofine (at 15% by weight) were incorporated into the lime mortar to determine the optimal combination that improves the thermo-physical properties. Microstructural analyses of the modified mortar were conducted utilising X-ray powder diffraction (XRD), FTIR spectroscopy, and SEM-EDS. Thermal conductivity and Differential Scanning Calorimetry (DSC) analyses were performed to elucidate the thermal properties and behaviour of the mortar. Evaluating the modified mortar's physical properties involved conducting compression and flexural strength tests. The optimised SA concentration (10–15%) guarantees hydrophobicity while minimally affecting structural integrity, rendering it an effective solution for passive temperature control and a decrease in thermal conductivity from 0.68 W/m. K to 0.22 W/m. K substantiates the enhanced insulation qualities, rendering it an appropriate option for energy-efficient structures. This research demonstrates that calcium carbonate can serve as a protective barrier for stearic acid due to successful encapsulation.