The existence of aniline blue in aquatic environments poses a large threat to aquatic organisms. Microbial degradation of aniline blue has been frequently used in remediation because of its effectiveness, low cost, and environmental friendliness. However, the mechanisms by which the dye can be biodegraded are not well understood. In this study, Bacillus thuringiensis DHC4 was isolated from the gut of a soil-feeding termite, and its ability to degrade aniline blue was investigated. The results showed that DHC4 was highly resistant to both aniline blue and salt, with the decolorization rate reaching 78% and 67% after 96 h of incubation at initial dye concentrations of 1 g/L and 7% salinity, respectively. Aniline blue degradation products were identified based on UV–vis, FTIR, and GC–MS analyses, and genome analysis confirmed that DHC4 contained many potential dye-degrading genes. Transcriptome analysis revealed significant up-regulation of methyltransferase, nitroreductase, arylamine N-acetyltransferase and oxidoreductase genes on exposure to aniline blue, indicating their active role in its biodegradation. A new degradation pathway of aniline blue by DHC4 is proposed, based on analysis of metabolites and differentially expressed genes. This mechanism involves cleavage of aniline blue by oxidoreductases into mono- and diphenyl ring molecules, followed by further methylation and alkylation through methyltransferases. The phytotoxicity results showed that aniline blue was degraded by DHC4 into less toxic metabolites. These results provide new insights into the mechanism of biodegradation of aniline blue by microorganisms.