Zero valent iron (ZVI) is expected to help create an enhanced anaerobic environment that might improve the performance of anaerobic treatment. Based on this idea, a novel ZVI packed upflow anaerobic sludge blanket (ZVI-UASB) reactor was developed to treat azo dye wastewater with variable influent quality. The results showed that the reactor was less influenced by increases of Reactive Brilliant Red X-3B concentration from 50 to 1000 mg/L and chemical oxygen demand (COD) from 1000 to 7000 mg/L in the feed than a reference UASB reactor without the ZVI. The ZVI decreased oxidation-reduction potential in the reactor by about 80 mV. Iron ion dissolution from the ZVI could buffer acidity in the reactor, the amount of which was related to the COD concentration. Fluorescence in situ hybridization test showed the abundance of methanogens in the sludge of the ZVI-UASB reactor was significantly greater than that of the reference one. Denaturing gradient gel electrophoresis showed that the ZVI increased the diversity of microbial strains responsible for high efficiency.