Alcaligenes species capable of degrading highly recalcitrant, carcinogenic, water-soluble dye—Congo red—were isolated from Indian West coastal sediments. Individual strains showed decolorization rates ranging from 76.49 to 98.76% within 24–48 h. Decolorization was most efficient at anoxic conditions catalyzed by intracellular azoreductase enzyme with an activity of 0.032 µmol min−1 mg−1 of protein. Degradation was confirmed by HPLC and FTIR analysis. LC/MS analysis of degraded metabolites established the cleavage of the azo bond-producing biphenyl diamine and 1,2′-diaminonapthalene-4-sulfonic acid. These results signify the effectiveness and ease to engineer processes such as feed batch/immobilized cell systems using these strains as biocatalysts to address the problem of global coastal water pollution caused by increased disposal of azo dye-containing industrial effluents.