The growth of granules on a phenol synthetic medium and the methanogenic fermentation of industrial phenolic wastewater from a steel factory in an upflow anaerobic sludge blanket (UASB) reactor were investigated. Total granular sludge concentration retained in the UASB reactor was 6.7 g MLSS/l (6.0 g MLVSS/l) during the 10 months’ operation on the phenol synthetic medium. This realized a maximum phenol removal rate of 2.2 g/l . d (phenol concentration of influent = 500 mg/l), which corresponded to 5.2 g COD/l . d at space velocity (SV) of 4.4 d(-1). The granules formed were of relatively small size ranging from 0.61 to 0.77 mm, and had a relatively low density of 0.013-0.023 g MLVSS/cm(3) and low specific gravity (1.11) due to very low ash content (8.7-11.9%). Electron microscopic analysis showed that Methanothrix spp. appeared dominantly on the granule surface as well as within it. The specific metabolic activities of bacterial trophic groups were the highest for H-2 followed by acetate, benzoate, phenol, and propionate. In the case of industrial phenolic wastewater, although phenol efficiency was only 50% at SV of 0.4 d(-1), when the wastewater was diluted twofold and the treated wastewater was recycled at SV of 7.3 d(-1), the removal efficiencies of phenol and CODcr were restored to 90% (influent=400 mg/l) and 80% (influent-5,000 mg/l), respectively. It was suggested that recycling of the treated wastewater might be improved by partly degrading unknown toxic compounds contained in phenolic wastewater.