The wastewaters produced from dyeing process in textile industries contain xenobiotic mixed reactive dyes that have negative impact on ecosystem when discharged as untreated/partially treated. The present study aims to degrade mixed dyes (reactive red 21 (RR21) and reactive orange 16 (RO16)) present in wastewater by Pseudomonas aeruginosa 23N1. The process optimization and the effect of experimental parameters (like amount of co-substrate, pH and temperature) on process performance are investigated through response surface methodology. To understand the extent of degradation of dye compounds, metabolites extracted from treated water samples were investigated using UV–visible, FTIR and GC-MS analyses. The results reveal that the bacteria could significantly reduce ADMI value of wastewater by ~ 87% against the initial mixed dyes containing aqueous solution (50 mg/L each of RR21 and RO16 dyes). The analysis of extracted metabolites from treated water sample indicates the utilization of dye compounds as nutrient by bacteria. The bacteria might exhibit satisfactory ADMI reduction in the presence of initial ≤ 100 mg/L Cr(VI) concentration. The bio-degradation is performed under microbial fuel cell in the presence of co-substrate yeast extract and found very much promising in terms of faster ADMI reduction and energy production. The maximum output voltage generation of 790 ± 5 mV and power density 940.61 ± 5 mW/m2 are recorded during decolourization of mixed dye-laden real wastewater in a microbial fuel cell. The bacteria studied here confirm the effective bio-decolourization of real textile wastewater.