Aerobic granulation, a novel environmental biotechnological process, was increasingly drawing interest of researchers engaging in work in the area of biological wastewater treatment. Developed about one decade ago, it was exciting research work that explored beyond the limits of aerobic wastewater treatment such as treatment of high strength organic wastewaters, bioremediation of toxic aromatic pollutants including phenol, toluene, pyridine and textile dyes, removal of nitrogen, phosphate, sulphate and nuclear waste and adsorption of heavy metals. Despite this intensive research the mechanisms responsible for aerobic granulation and the strategy to expedite the formation of granular sludge, and effects of different operational and environmental factors have not yet been clearly described. This paper provides an up-to-date review on recent research development in aerobic biogranulation technology and applications in treating toxic industrial and municipal wastewaters. Factors affecting granulation, granule characterization, granulation hypotheses, effects of different operational parameters on aerobic granulation, response of aerobic granules to different environmental conditions, their applications in bioremediations, and possible future trends were delineated. The review attempts to shed light on the fundamental understanding in aerobic granulation by newly employed confocal laser scanning microscopic techniques and microscopic observations of granules.