Insect frass presents several advantages, including high nutrient content, absence of antibiotic residues, low risk of heavy metal contamination, wide availability, and low cost. However, its application in ameliorating acidic soils remains unexplored. This study investigated the effects of different application rates of frass produced by Protaetia brevitarsis larvae fed on mushroom residue in a 28-day microcosm experiment, focusing on its impact on the physicochemical properties and microbial characteristics of acidic red soil, thereby evaluating its potential for soil improvement. The results indicated that frass application significantly increased soil pH, available phosphorus, and available potassium, as well as the activities of β-glucosidase, urease, leucine aminopeptidase, acid phosphatase, and alkaline phosphatase. Furthermore, it enhanced the abundances of both bacteria and fungi while altering their community composition. Notably, these effects on soil physicochemical properties and microbial communities were significantly positively correlated with the frass application rate. However, higher application rates resulted in reduced Shannon and Chao1 diversity indices for both bacterial and fungal communities. Frass also increased the relative abundances of the dominant bacterial phyla Proteobacteria, Bacteroidota, Actinobacteriota, and Acidobacteriota, as well as the fungal phylum Ascomycota. Partial least squares path modeling (PLS-PM) revealed that frass primarily enhanced soil biological functions by improving soil physicochemical properties, which subsequently promoted microbial abundance and restructured microbial community composition. Therefore, insect frass serves as an effective amendment for acidic red soil, demonstrating beneficial effects on both soil physicochemical and biological properties.