Over 40% of high-purity silicon (Si) is consumed as sludge waste consisting of Si, silicon carbide (SiC) particles and metal impurities from the fragments of cutting wire mixed in ethylene glycol based cutting fluid during Si wafer slicing in semiconductor fabrication. Recovery of Si from the waste Si sludge has been a great concern because Si particles are promising high-capacity anode materials for Li ion batteries. In this study, we report a novel one-step aerosol process that not only extracts Si particles but also generates Si-graphene (GR) composites from the colloidal mixture of waste Si sludge and graphene oxide (GO) at the same time by ultrasonic atomization-assisted spray pyrolysis. This process supports many advantages such as eco-friendly, low-energy, rapid, and simple method for forming Si-GR composite. The morphology of the as-formed Si-GR composites looked like a crumpled paper ball and the average size of the composites varied from 0.6 to 0.8 μm with variation of the process variables. The electrochemical performance was then conducted with the Si-GR composites for Lithium Ion Batteries (LIBs). The Si-GR composites exhibited very high performance as Li ion battery anodes in terms of capacity, cycling stability, and Coulombic efficiency.