Filamentous and nonfilamentous microorganisms can cause bulking and foaming in wastewater sludge settling and dewatering. In this research, sludge degradation and bioflocculation was studied using pellet-forming filamentous fungi isolated from municipal wastewater sludge. To understand the role of filamentous fungi in sludge settling and dewatering, the isolated fungi was inoculated with both spores and pellets (beads) into sterilized and nonsterilized sludge having different suspended-solids concentrations. Biofloc formation, sludge settling, sludge degradation, change in pH of fungal-grown medium, zeta potential, and microscopic analysis of bioflocs were performed. The suspended-solids concentration was found to decrease over 5 d of incubation because of use and biodegradation by fungal biomass. The isolated fungal strain was well adapted to forming biofloc and to interacting with natural microbial flora and exhibited low capillary-suction time for sludge dewatering.