The present study was aimed at the development of aerobic granules in sequencing batch reactor (SBR) for the biodegradation of p-nitrophenol (PNP). The reactor was started with 50 mg L−1 of PNP. Aerobic granules first appeared within 1 month of the start up of the reactor. The granules were large and strong and had a compact structure. The diameter of stable granules on day 200 was in the range of 2–3 mm. The integrity coefficient and granule density was found to be 98% and 1,031 kg m−3 respectively. The settling velocity of granules was found to be in the range of 3 × 10−2 to 4 × 10−2m s−1. The aerobic granules were able to degrade PNP up to 700 mg L−1 at a removal efficiency of 87%. Gas chromatography–mass spectrometry studies confirmed that the biodegradation of PNP occurred by an initial oxygenase attack that resulted in the release of nitrite and the accumulation of hydroquinone. The specific PNP degradation rate in aerobic granules followed the Haldane model for substrate inhibition. A high specific PNP degradation rate up to 0.872 g PNP g−1 VSS−1 d−1 was sustained up to PNP concentration of 200 mg L−1. Higher removal efficiency, good settling characteristics of aerobic granules, makes a SBR suitable for enhancing the microorganism potential for biodegradation of inhibitory compounds.