Dispersion of dispersive soil occurs when it comes in contact with water and clay particles deflocculate and disperse away from each other. Thus dispersive soils undergo erosion under low seepage velocity leading to instability problems of slopes and earth retaining structures. The amount of dispersion depends upon the mineralogy and geochemistry of clayey soil as well as the dissolved salts of the pore fluid. The dispersivity of the soil mainly depends on the amount of exchangeable sodium present in its formation. Under saturated conditions, the attractive forces are less than the repulsive forces and this will help the particles to disperse and go into colloidal suspension. The use of chemical stabilizers such as lime and cement to bind the clay particles and reduce the dispersivity of soil and to improve the compaction and CBR characteristics of bauxite rich dispersive soil present in Khushab district have been studied in this research. Soil behavior was studied after addition of 2%, 4%, 6% and 8% Lime and Cement, at optimum level of 6% for Lime and Cement; it has been observed that the CBR and compaction characteristics of Khushab soil have been improved.