Aerobic granular sludge (AGS) is a promising biotechnology for the treatment of antibiotic−rich wastewater. However, little is known about the antibiotics degradation mechanism and microbial response in a sulfamethoxazole (SMX)-loaded AGS system. Herein, the results of a continuous 240 days test suggested that 0.5–5 mg/L of SMX could be thoroughly removed by AGS via adsorption and degradation. The degradation pathway of SMX involved the hydrolysis of the sulfonamide bond and cleavage of NS or CS bonds, subsequently leading to the production of small molecular substances (e.g. benzene and 5-methyl-isoxazole). In terms of the AGS system, it exhibited a strong resistance to 0.5 mg/L of SMX, while 1 and 5 mg/L of SMX significantly inhibited the microbial growth, declined the nitrification efficiency, weakened the sludge settleability, and triggered the excessive growth of filamentous bacteria. Besides, the secretion of extracellular polymer substances was suppressed by 57.3% when increasing the SMX concentration from 0.5 to 5 mg/L, which was not conducive to the system stability. The long−term presence of SMX enhanced the proliferation of antibiotics resistance genes (sul1and sul2) and exerted a strong selection pressure on the microbial community, especially with Thiothrix being the dominating genus. Overall, this study elucidated that AGS qualified promising application prospects in the removal of SMX present in wastewater, but SMX at high concentrations posed great adverse impacts on the performance of the AGS system, which causes concern when treating SMX rich wastewaters. Display omitted •A thorough removal of SMX (0.5–5 mg/L) was achieved via adsorption and degradation.•Two degradation pathways were proposed for the degradation process of SMX by AGS.•AGS system was adversely affected by 1 and 5 mg/L SMX, but not by 0.5 mg/L SMX.•HGT mediated by intI1 was responsible for the proliferation of ARGs (sul1 and sul2).•Microbial community structure of AGS was significantly shifted upon exposure to SMX.