The characteristics of sludge retained in a down-flow hanging sponge reactor were investigated to provide a better understanding of the sewage treatment process in the reactor. The organic removal and sulfur oxidation conditions were found to differ between the first layer and the following three layers. It was found that 63% and 59% of the organic matter was removed in the first layer, even though the hydraulic retention time was only 0.2 h. It is thought that the organic removal resulted from aerobic and anaerobic biodegradation on the sponge medium. The sulfate concentration increased 1.5–1.9-fold in the first layer, with almost no subsequent change in the second to fourth layers. It was shown that oxidation of sulfide in the influent was completed in the first layer. The result of the oxygen uptake rate test with an ammonium nitrogen substrate suggested that the ammonium oxidation rate was affected by the condition of dissolved oxygen (DO) or oxidation–reduction potential (ORP).