The effects of the chemical composition of water on granular sludge formation and characteristics in a denitrifying upflow sludge-blanket (USB) reactor were studied. Denitrification of drinking water showed different biomass sludge characteristics when the reactor was fed with groundwater as opposed to surface water. USB reactors fed with groundwater produced granules with good settling characteristics, SVI (sludge volume index) values lower than 30 ml/g, and high reactor biomass concentrations (20-25 g/l), while surface-water-fed reactors exhibited lower biomass concentrations (10-15 g/l) due to poor settling characteristics (SVI values of 50-90 ml/g). Sludge granules from the reactor fed with surface water had a low mineral content of between 10% and 20% as compared to a mineral content of 25%-50% in the groundwater reactor. The larger mineral content in the groundwater-fed reactor was due to a greater precipitation potential, i.e. higher concentrations of calcium and alkalinity present in groundwater combined with the release of alkalinity and subsequent increase in pH caused by biological denitrification. Verification for this phenomenon was established by enriching surface water with calcium and alkalinity, which increased the reactor’s precipitation potential from 15 mg/l to 40 mg/l (as CaCO3). The granules obtained from the reactor fed with enriched surface water had a high mineral content of between 40% and 50% and very low SVI values, contributing to improved granule-settling characteristics and reactor stability.