Aerobic granulation was developed in overcoming the problem of biomass washout often encountered in activated sludge processes. The novel approach to developing fluffy biosolids into dense and compact granules offers a new dimension for wastewater treatment. Compared with conventional biological flocs, aerobic granules are characterized by well-defined shape and compact buildup, superior biomass retention, enhanced microbial functions, and resilient to toxicity and shock loading. This review provides an up-to-date account on development in aerobic granulation and its applications. Granule characterization, factors affecting granulation, and response of granules to various environmental and operating conditions are discussed. Maintaining granule of adequate structural stability is one of the main challenges for practical applications of aerobic granulation. This paper also reviews recent advances in addressing granule stability and storage for use as inoculums, and as biomass supplement to enhance treatment efficiency. Challenges and future work of aerobic granulation are also outlined.