Microbial granules were successfully cultivated in an alternating aerobic-anaerobic sequencing batch reactor (SBR) for removing organic carbon and nitrogen. It was found that almost all input ammonium was converted to nitrite and nitrate in the aerobic phase, while the efficiency of denitrification was highly related to the availability of external carbon source in the anaerobic phase. Complete denitrification was achieved with sufficient supply of external carbon, while only partial denitrification was observed with no addition of external carbon. Results showed that in the absence of external carbon source, pre-accumulated poly-beta-hydroxybutyric acid (PHB) in microbial granules could be utilized for cell maintenance and denitrification. With supply of external carbon but no addition of nitrate, PHB accumulation accounted for the main mechanism of the organic removal. Under balanced growth conditions (with organic carbon and nitrogen supply), external organic carbon was consumed simultaneously for denitrification, PHB storage as well as for cell functions. It was revealed that the potential role of PHB for denitrification by microbial granules was very limited, i.e. less than 28 mg nitrate-nitrogen l(-1) was found to be denitrified with internally accumulated PHB. This study for the first time shows the limiting capacity of PHB as reducing power for denitrification by microbial granules.