Dyes are synthetic organic compounds widely used in various industries such as, textile, leather, plastic, food, pharmaceutical, and paints manufacturing industries. Coloured effluents are highly toxic to the aquatic life and mutagenic to humans. Wastewater containing dyes has become an important issue demanding serious attention. Among the synthetic dyes, azo dyes are the largest and most widely used dyes and account for more than half of the annually produced dyes. The biodegradation of azo dyes is difficult due to their complex structure and synthetic nature. Several treatments have been proposed for efficient azo dye removal, most of them presenting some limitations such as generation of waste sludge, high operational costs, poor efficiency, and incomplete mineralization. Biological treatment is a cost-effective and eco-friendly process for dye degradation. Sequential anaerobic–aerobic biological treatment is considered as one of the most cost-effective methods for the complete mineralization of azo dyes. The anaerobic stage yields decolourization through reductive cleavage of the dye’s azo linkages, resulting in the formation of generally colourless but potentially hazardous aromatic amines. The aerobic stage involves degradation of the aromatic amines. It is the most logical step for removing the azo dyes from the wastewater. Several factors can influence the microbial activity and consequently the efficacy and effectiveness of the complete biodegradation processes. This paper summarizes the results of biological decolourization of azo dyes using various types of reactors, elaborates biochemical mechanisms involved, and discusses influence of various operational parameters on decolourization based on reports published in the last decade.