The degradation of textile effluent using microorganisms has been studied extensively, but disposal of generated biomass after dye degradation is a serious problem. Among all tested microorganisms, isolated Sphingobacterium sp. ATM effectively decolorized (100%) the dye Direct Blue GLL (DBGLL) and simultaneously it produced (64%) polyhydroxyhexadecanoic acid (PHD). The organism decolorized DBGLL at 300 mg l(-1) concentration within 24 h of dye addition and gave optimum production of PHD. The organism also decolorized three combinations of mixture of dyes. The organism decolorized textile effluent too when it was combined with medium. The organism produced a maximum of 66% and 61% PHD while decolorizing mixture of dyes and textile effluent respectively. Molasses was found to be more significant within all carbon sources used. The activity of polyhydroxyalkanoate (PHA) synthase was found to be higher after 24 h of addition of DBGLL. The enzymes responsible for dye degradation, viz. veratryl alcohol oxidase, laccase, DCIP (2,6-dichlorophenol-indophenol) reductase, riboflavin reductase, and azo reductase were found to be induced during decolorization process of DBGLL and mixture of dyes. There was significant reduction in chemical oxygen demand (COD) and biological oxygen demand (BOD). FTIR analysis of samples before and after decolorization of dye confirmed the biotransformation of DBGLL.