In this study, a novel upflow microaerobic sludge reactor (UMSR) was constructed to conduct anaerobic digestion of municipal wastewater with low carbon and nitrogen ratio (C/N). Oxygen in the UMSR was supplied by falling water and external recirculation. Excellent nitrogen removal performance was obtained in the UMSR for treating wastewater with low C/N ratio at a temperature of 25 degrees C and a hydraulic retention time of 24 h. Ammonium and total nitrogen removal efficiencies averaged 92.35% and 90.41%, respectively, and sludge granulation occurred during acclimation. The inferred metabolism of nitrogen removal and ecological positions of functional microbe were integrated into a granule model by scanning electron microscopy. Additionally, the analysis of microbial community indicated that aerobic nitrifying bacteria and heterotrophic bacteria survived on the surface of sludge floc and granules while the anaerobic autotrophic, heterotrophic denitrifying, and anaerobic ammonia oxidation bacteria were present in the inner layer.