Eight fungal and three bacterial isolates collected from decomposed wood, sediment core and effluent of pulp and paper mill were evaluated for their ability to decolourize kraft pulp bleached effluents. Decolourization potency of Paecilomyces sp. (F-3) was maximal (67%) on day I followed by F-5 (Phoma sp.) and F-7 (Paecilomyces varioti). Among the various carbon sources used, Paecilomyces sp. (F-3) reduced more than 80% colour and lignin in the presence of minimal salt medium and dextrose (0.2%, w/v), and there was an increase in biomass from 8.1 mg/ml initially to 12.8 mg/ml during that period. In the batch reactor one of the three bacteria, Pseudomonas aeruginosa, removed 48% colour from the effluent after 1 day followed by Acinetobacter calcoaceticus (39%) and Klebsiella pneumoniae (25%). In a two stage sequential bioreactor strain F3 was able to reduce 68% colour and P aeruginosa 34% in 1 day. However, when fungal treated effluent was subsequently treated by R aeruginosa 82% colour was reduced. The reduction of adsorbable organic halogens (AOX) in effluent was determined by F3 strain, however, bacterial strain PCP2 increased the content initially on day 1, which was readily degraded after 3 days by both fungus and bacterium in the sequential bioreactor. (C) 2003 Elsevier Ltd. All rights reserved.