Microbial digestion has the potential to break down complex organic compounds so that they may further degrade it to completely harmless form. The main objective of the present work is to reduce the colour and degradation of the industrial effluent containing extensively used textile dye Reactive Red 198 (RR198) by microbial method. The activated sludge of textile printing waste water treatment plant of Erode, Tamilnadu, India was used as a source of inocula for the isolation of an efficient dye-decolorizing bacterium strain. The isolated bacterial strain was able to use RR198 as sole carbon source for its growth. Gram staining and 16S rDNA gene sequence analysis have identified bacterial strain as Alcaligenes sp. AP04. The isolated strain has decolorized about 90 % of initial dye concentration of Azo dye RR198 within 24 h under aerobic condition at pH 7.0 and temperature 25 °C with 50–200 mg/L dye concentration. A soluble cytosolic enzyme, azoreductase was isolated from it and its molecular mass was found to be 60 kDa. This enzyme has NADH/NADPH-dependent activity and oxygen sensitivity. The thin layer chromatography and gas chromatography–mass spectrometry (GC–MS) analysis of dye decolorized product has confirmed the successful dye degradation by the bacterial activity. Phytotoxicity and inhibition of seed germination of Cicer arietinum and Phaseolus mungo were shown by RR198 treatment while no toxicity and seed germination inhibition was found with the dye degraded products in C. arietinum and P. mungo. Present study might offer valuable implications for the practical application of Alcaligenes sp. for the treatment of azo dyes of industrial effluents.