A novel process for removing sulfur from wastewater containing dissolved sulfide has been developed and implemented in a membrane bioreactor (MBR) process treating anaerobically pretreated industrial (pulp and paper) wastewater at the Gippsland Water Factory. Controlled oxygen addition to the first bioreactor zone (constituting 27.7% of the total bioreactor volume) to create oxygen-limiting conditions, followed by oxygen-sufficient conditions in the remaining zones of the bioreactor, provide the necessary conditions. Dissolved sulfide is oxidized to elemental sulfur in the first zone, and the accumulated sulfur is retained in the bioreactor mixed liquor suspended solids (MLSS) in the remaining zones. Accumulated sulfur is removed from the process in the waste activated sludge (WAS). Oxidation of dissolved sulfide to elemental sulfur reduces the associated process oxygen requirement by 75% compared to oxidation to sulfate. Microscopic examinations confirm that biological accumulation of elemental sulfur occurs. Process performance was analyzed during a nearly 2-year commissioning and optimization period. Addition of air in proportion to the process influent dissolved sulfide loading proved the most effective process control approach, followed by the maintenance of dissolved oxygen concentrations of 1.0 and 1.5 mg/L in the two downstream bioreactor zones. Sufficient oxygen is added for the stoichiometric conversion of dissolved sulfide to elemental sulfur. Enhanced biological phosphorus removal also occurred under these conditions, thereby simplifying supplemental phosphorus addition. These operating conditions also appear to lead to low and stable capillary suction time values for the MBR mixed liquor.