In order to explore whether the acidogenic phase and methanogenic phase could be separated vertically into a single-stage anaerobic reactor, a controlled double circulation (CDC) anaerobic reactor was proposed for treating traditional Chinese medicine (TCM) wastewater in this study. The results showed that most of the organic pollutants and refractory were removed in the first reaction area where most of the amount of sludge existed. The organic acids were accumulated in the first reaction area, and larger specific methanogenic activity (SMA) and coenzyme F-420 values were found in the second reaction area. Bacterial and archaeal community structures in the two reaction areas of the CDC reactor were analyzed by Illumina MiSeq Sequencing, which revealed that the archaeal community showed larger difference compared with the bacterial community. Differences in the performance and microbial composition of the two reaction areas confirmed that phase separation was implemented in the CDC reactor.