Abstract Aerosols and clouds greatly affect the Earth’s radiation budget and global climate. Light detection and ranging (lidar) has been recognized as a promising active remote sensing technique for the vertical observations of aerosols and clouds. China launched its first space-borne aerosol-cloud high-spectral-resolution lidar (ACHSRL) on April 16, 2022, which is capable for high accuracy profiling of aerosols and clouds around the globe. This study presents a retrieval algorithm for aerosol and cloud optical properties from ACHSRL which were compared with the end-to-end Monte-Carlo simulations and validated with the data from an airborne flight with the ACHSRL prototype (A2P) instrument. Using imaging denoising, threshold discrimination, and iterative reconstruction methods, this algorithm was developed for calibration, feature detection, and extinction coefficient (EC) retrievals. The simulation results show that 95.4% of the backscatter coefficient (BSC) have an error less than 12% while 95.4% of EC have an error less than 24%. Cirrus and marine and urban aerosols were identified based on the airborne measurements over different surface types. Then, comparisons were made with U.S. Cloud-Aerosol Lidar with Orthogonal Polarization (CALIOP) profiles, Moderate-resolution Imaging Spectroradiometer (MODIS), and the ground-based sun photometers. High correlations (R > 0.79) were found between BSC (EC) profiles of A2P and CALIOP over forest and town cover, while the correlation coefficients are 0.57 for BSC and 0.58 for EC over ocean cover; the aerosol optical depth retrievals have correlation coefficient of 0.71 with MODIS data and show spatial variations consistent with those from the sun photometers. The algorithm developed for ACHSRL in this study can be directly employed for future space-borne high-spectral-resolution lidar (HSRL) and its data products will also supplement CALIOP data coverage for global observations of aerosol and cloud properties.