Owing to the inherent shortcomings of conventional biological dye effluent treatment processes, researchers have proposed diverse intriguing approaches that await practical implementation. This study demonstrates the feasibility of an innovative membrane-coupled fungi reactor. Preliminary batch tests revealed the noteworthy role of biosorption along with biodegradation in decoloration, and also confirmed excellent decoloration even in the presence of hardly biodegradable polyvinyl alcohol besides recalcitrant dye in the wastewater. Conversely, the continuous reactor achieved stable 97% total organic carbon (TOC) and 99% color removal with a hydraulic retention time (HRT) of 15 h. A marked decrease in the UV absorbance of the membrane permeate, and the detection of short-chain aliphatic acids in the permeate provided evidence of the subsequent biodegradation of the aromatic group following the breakdown of the color-imparting chromophoric group of the dye.