Self-healing concrete using encapsulated healing agent has shown great potential in enhancing concrete durability. However, the capsules are expensive to make and can lower the mechanical properties of concrete. In this study, a new type of manufactured aggregate that employs waste-derived fly ash cenosphere as a carrier of healing agent (SH-CS) was designed and produced. The effect of SH-CS incorporation on hydration, engineering properties and self-healing efficiency of cement mortar was systematically evaluated, with a special focus on self-healing mechanism through the analysis of the mineral composition of the healing product. The results indicate that the prepared SH-CS has good stability in and compatibility with cement mortar. The addition of SH-CS has small influence on the fresh properties of cement mortar and less negative effect on compressive strength at the hardened stage compared to the existing study. By replacing 3 wt.% of fine aggregate with SH-CS, up to 71% of the crack opening area of mortar specimens with a crack width of about 0.3 mm was self-healed after 28 days of water exposure. The self-healing behaviour of SH-CS led to a maximal 41% drop in water adsorption and contributed to the recovery of flexural strength. The healing products precipitated on the fracture surface were mainly composed of amorphous C-S-H and Calcite. It can be estimated that incorporating SH-CS in concrete would result in only a moderate (∼29%) rise in cost for C40 concrete.