Sustainable plant establishment on ore processing residues requires development of a functional soil, which includes the introduction of organic matter and reestablishment of active microbial communities. This study investigated the development of microbial diversity and function in residue sand generated from alumina refining of mined bauxite ore. The residue sand embankments underwent rehabilitation with native vegetation over time, allowing study of a 3‐year chronosequence using space‐for‐time substitution. A coastal dune ecosystem was used as a natural alkaline sand analog with which to compare residue properties. Microbial biomass carbon in the residue sands were typically well below that of the coastal sand analog (< 50 mg kg−1 in residue sand compared to circa 450 mg kg−1 in coastal sand). Although the size of the microbial biomass appeared to be limited by the low organic matter content of the residue sand, a decline in microbial metabolic quotient indicated a potential alleviation of microbial stress with rehabilitation age. Despite the low microbial biomass, the ability of the residue sand microbial community to function with respect to the metabolism of added amino acids developed rapidly. Contrary to our original hypothesis, the diversity of the bacterial and fungal community also developed rapidly, and was similar to, or higher than, the coastal sand analog in 0.5‐year‐old rehabilitation. However, the bacterial, and in particular the fungal, community structure within residue sands were significantly different to that of the coastal sand analog with shifts in community structure driven, in part, by changing physicochemical conditions.