Chain elongation is an open-culture biotechnological process which converts short chain fatty acids and an electron donor to medium chain fatty acids (MCFAs). With this letter we present the first observation of granular sludge formation in a chain elongation process. This discovery was made in a continuously stirred anaerobic reactor producing caproate (10.8 g L-1 d(-1)) and heptanoate (1.8 g L-1 d(-1)) as main MCFAs. Concurrently granular and suspended sludge were shaped and attributed to 85% and 15% respectively of the total sludge. Both sludge types showed equal product distributions and contributed similarly to MCFA production. Granules had irregular shapes, diameters up to similar to 1.5 mm, settling velocities of 4-36 m h(-1) and contained micro-organisms with various shapes. The in -situ settler retained sludge in the bioreactor resulting in a SRT of 4.7 days at an HRT of 17 h. Granular sludge based chain elongation can be optimised as a high rate biotechnological process. (C) 2016 Elsevier Ltd. All rights reserved.