Two-stage anaerobic system (S1: R1 (acidogenic phase) + R2 (methanogenic phase)) and the one-stage control (S0) were established to investigate the effect of phase separation on the removal of an azo dye orange II, i.e., Acid Orange 7 (AO7), with starch as the primary co-substrate. Although final AO7 removal from two systems showed no statistical differences, the first-order rate constants for AO7 removal (kAO7) and sulfanilic acid (SA) formation (kSA) were higher in S1. Kinetic analysis showed that kAO7 and kSA in S1 were 2.7-fold and 1.7-fold of those in S0, respectively, indicating the benefit of phase separation to the AO7 reduction. However, this benefit only appeared in the period with influent AO7 concentrations higher than 2.14 mM. Otherwise, this advantage would be hidden due to the longer HRT (5 d) and sufficient electron donor (1.0 g starch L−1). Within S1, R1 only contributed about 10% of the entire AO7 removal, and kAO7 in R1 (0.172 h−1) was much lower than in R2 (0.503 h−1). The methanogenic phase rather than acidogenic phase was the main contribution to AO7 removal, because the influent of R2 had more available electron donors and suitable pH condition (pH 6.5–7.0) for the bio-reduction process.