No biodegradation methods are absolute in the treatment of all textile dyes, which leads to structure-dependent degradation. In this study, biodegradation of three azo dyes, reactive black 5 (RB5), acid blue 113 (AB113), and acid orange 7 (AO7), was investigated using an immobilized fungus, Trametes hirsuta D7. The degraded metabolites were identified using UPLC-PDA-FTICR MS and the biodegradation pathway followed was proposed. RB5 (92%) and AB113 (97%) were effectively degraded, whereas only 30% of AO7 was degraded. Molecular docking simulations were performed to determine the reason behind the poor degradation of AO7. Weak binding affinity, deficiency in H-bonding interactions, and the absence of interactions between the azo (-NN-) group and active residues of the model laccase enzyme were responsible for the low degradation efficiency of AO7. Furthermore, cytotoxicity and genotoxicity assays confirmed that the fungus-treated dye produced non-toxic metabolites. The observations of this study will be useful for understanding and further improving enzymatic dye biodegradation.