A new visible light-driven photocatalyst, Bi5O7I, prepared by a hydrothermal method was studied. The as-prepared Bi5O7I exhibited efficient photocatalytic activity in the decomposition of a widely used dye, tetraethylated rhodamine (RhB), in water and acetaldehyde (CH3CHO) in air under visible light irradiation. Besides decoloring, the reduction of chemical oxygen demand concentration was also observed in the degradation of RhB, further demonstrating the photocatalytic performance of Bi5O7I. The results of density functional theory calculations indicated that the conduction band bottom of Bi5O7I is mainly composed of Bi 6p orbits, and the valence band top primarily consists of I 5p and O 2p orbits. The as-prepared Bi5O7I exhibited much higher photocatalytic activity than Bi2O3, which may be ascribed to the hybrid states of the valence bands as well as the internal electric fields between Bi5O7 and I slabs. According to experimental results, a possible photocatalytic mechanism of Bi5O7I was proposed.