The rapid growth of population has led to increased demand for fast, affordable and quality housing development. Today, the construction industry in Malaysia has shifted from conventional methods to Industrial Building Systems (IBS). The most commonly used IBS component is precasat concrete with lightweight foam concrete. This study focuses on the main component of foam lighweight concrete, which is a partially replacement of cement by sawdust and fly ash. Among the features of lightweight concrete is density below 1800 kg/m3. Therefore, the objectives of this study is to determine the effects of sawdust and fly ash as part of cement replacement in terms of mechanical properties (compressive strenght) and physical properties (water absorption). In addition, this study also determine the optimum percentage of cement replacement by sawdust and fly ash in building material. The percentage of saw dust and fly ash used in this study as a partial replacement cement are 5%, 10%, 15% and 20%. The results show that increasing the percentage of mix propotion will increase the water absorption rate as well as decrease the compressive strenght of strength. Also, the density and compressive strength of lightweight foam concrete will decrease as the percentage of partial replacement cement increases. According to JKR Standard Specification for Building Works that referred in Malaysia, the minimum compression strength of lightweight foam concrete allowed for hollow blocks is 2.8 N/mm2. The results obtained from this study show lightweight concrete blocks using saw dust and fly ash as part of the cement replacement meet the standards and can be commercialized in the industrial building system development.