Perfluorooctanoic acid (PFOA), as a recalcitrant organic pollutant, inevitably enters wastewater treatment facilities and is enriched in settled sludge. However, the potential impact of PFOA on sludge treatment has never been documented. In this study, the effect of PFOA on anaerobic digestion of sewage sludge and its underlying mechanism were investigated through batch and long-term experiments. The presence of PFOA was found to be deleterious for methane production from sewage sludge. 170 mg/kg total solids PFOA reduced the cumulative methane production from 197.1 ± 1.92–159.9 ± 3.10 mL/g volatile solids. PFOA induces the production of reactive oxygen species, which directly leads to cell inactivation and interferes with methane production. PFOA stimulates microorganisms to secrete more extracellular polymeric substances (mainly proteins), which not only hinders the solubilization of organic matter but also down-regulate enzyme activities to inhibit acidification and methanogenesis. In addition, PFOA reduces the diversity of microorganisms, especially the abundance of acid-producing bacteria and methanogens, making the microbial community unfavorable for methane production.