Laboratory studies of in-reactor granular-sludge yield (Ygran) were carried out to investigate the effect of substrates rich in proteins. Both lab-scale upflow anaerobic sludge blanket (UASB) and shake-flask systems were used to monitor the behaviour of the sludge. Influent based on molasses with a COD to N ratio of 100:2.5-3.0 gave good Ygran; increasing substitution of the carbohydrate COD by protein COD resulted in a deterioration of the sludge characteristics. The negative effects appear to be related to the protein rather than to the NH4+ formed. Of the various environmental parameters examined, the surface tension of the mixed liquor was the main deviating factor. At a proper range of oxygenation i.e., by means of monitoring of both the input COD to oxygen ratio (gCOD gO2−1) and the daily oxygen loading rate (mgO2 gVSS−1.d−1), the UASB reactors treating the nitrogen-rich wastewater showed enhanced Ygran with only a minor reduction in methanogenesis. A range of working conditions in which this principle can be applied to decrease fluffy growth to the advantage of granular increase is proposed.