Aflatoxin M1 (AFM1) in milk poses a significant threat to human health. This study examined the capacity of Bacillus licheniformis CotA laccase to oxidize AFM1. The optimal conditions for the CotA laccase-catalyzed AFM1 oxidation were observed at pH 8.0 and 70 °C, achieving an AFM1 oxidation rate of 86% in 30 min. The Km and Vmax values for CotA laccase with respect to AFM1 were 18.91 μg mL−1 and 9.968 μg min−1 mg−1, respectively. Computational analysis suggested that AFM1 interacted with CotA laccase via hydrogen bonding and van der Waals interactions. Moreover, the oxidation products of AFM1 mediated by CotA laccase were identified as the C3-hydroxy derivatives of AFM1 by HPLC-FLD and UPLC-TOF/MS. Toxicological assessment revealed that the hepatotoxicity of AFM1 was substantially reduced following oxidation by CotA laccase. The efficacy of CotA laccase in removing AFM1 in milk was further tested, and the result showed that the enzyme agent achieved an AFM1 removal rate of 83.5% in skim milk and 65.1% in whole milk. These findings suggested that CotA laccase was a novel AFM1 oxidase capable of eliminating AFM1 in milk. More effort is still needed to improve the AFM1 oxidase activity of CotA laccase in order to shorten the processing time when applying the enzyme in the milk industry.