The present study deals with development of aerobic granules from textile wastewater sludge and challenged with different concentration of reactive blue 59 (RB59) to test their dye degradation potential. The granules efficiently degraded reactive blue 59 and also sustained higher dye loading of up to 5.0 g l(-1). The significant induction of enzymes azoreductase and cytochrome P-450 indicated their prominent role in the dye degradation while genotoxicity studies demonstrated that the biotransformed product of the dye as non-toxic. The microbial community of the textile dyes degrading aerobic sludge granules analyzed by polymerase chain reaction-denaturing gradient gel electrophoresis (PCR-DGGE), revealed significantly diverse dye degrading microbial community belonging to alpha-, beta-, and gamma-proteobacteria. (C) 2011 Elsevier Ltd. All rights reserved.