A laboratory upflow anaerobic sludge blanket reactor, seeded with fine, suspended, bacterial flee with 1.76 g volatile suspended solids/l, was used to treat synthetic methanolic waste. After 180 days of continuous operation, granular sludge with discrete granules of 1 to 2 mm diam. was formed, with 52 g volatile suspended solids/l. Granules were brown, relatively soft and had a settling velocity of 1.61 cm/s. Extracellular polymeric matter extracted from the granular sludge had high carbohydrate content but low nucleic acid content, The ash of the granular sludge contained Na+, K+ and Mg2+ up to 15.0, 11.7 and 3.75 mg/g, respectively. Scanning and transmission electron microscopy revealed that the granular sludge was dominated by methanogens resembling Methanosarcina.