Despite being the major source of freshwater, groundwater is contaminated with hardness, fluorides, salinity, and so on, and hence, its application for domestic/industrial purposes is severely limited. Existing remediation technologies demand both chemical and energy inputs. Therefore, in this study, an osmotic microbial fuel cell (OsMFC) was developed as an energy-positive and chemical-free technology to achieve simultaneous groundwater softening, defluoridation, salinity reduction, and bioelectricity production. High-quality water was extracted from wastewater in the OsMFC and was applied to reduce groundwater contaminants by dilution. The effects of feed/draw solution (FS/DS) ratio, membrane area, reactor volume, and time on water flux, energy production, and reduction efficiencies of Na+, Cl−, total hardness (TH), and F− were studied. The increase in FS/DS ratio and membrane area resulted in considerable improvement in the water flux, energy production, and contaminant reduction. However, an increase in the reactor volume had little effect on the overall performance. A maximum water flux of 9.81 litres per square meter per hour [LMH (L/m2/h)] with reduction efficiencies of 75.81%, 76.27%, 72.22%, and 65.76% for Na+, Cl−, TH, and F−, respectively, were obtained with an extended operating time of 168 h. Maximum chemical oxygen demand (COD) removal of 86.6% and current density of 0.34 mA/m3 were achieved simultaneously. The study demonstrated a sustainable approach of extracting high-quality water from wastewater and its application in groundwater remediation along with energy production.