Anaerobic digestion followed by aerobic treatment has gained wide acceptability for many of the wastewater treatment. Several novel bio-reactors have been developed. All these reactors pose a problem of shock loading, when the high COD organic industrial waste is fed in to the reactor. Further, the normal substrates like glucose, sewage, citric acid may result in addition of a large volume of the substrate solution for a given organic loading. Both these problems are solved by adopting molasses, a typical by-product from the sugar industry. Among the bio-reactors to treat high strength waste waters, the Up-flow Anaerobic Sludge Blanket Reactor (UASBR), has received wide popularity for the treatment of domestic waste waters as well as for a variety of industrial wastewaters. This paper is to present a cogent and a clear picture of the startup and steady state operation of an UASB Reactor with molasses as the initial startup substrate for the development of well settleable sludge granules, the major feature of an UASB Reactor. The UASB reactor was fabricated in transparent Plexiglas. The reactor had a working volume of 9.75 liters with provision of ports for input, output, collection of samples, and collection of gas. Inside the settler, a gas-liquid-solid separation system using a glass funnel and a gas pressurizing plexiglass tube was provided. The aim was to granulate the sludge and acclimatizing it completely to take high organic loading. The feed was supplemented with a fixed COD: N: P ratio by adding urea for nitrogen and KH2PO4 for phosphorous. The HRT was fixed to be 8 hours. The reactor temperature was maintained at 35 ± 20oC. In about 55 days, the buttery seed sludge got granulated at an OLR of 8 g COD/l.day. The SEM of the granules exhibited a mixed morphology on the surface of the granules while filamentous Methanothrix proliferation could be clearly seen in the interior of the granule. Methanoceata and Methanothrix are the two dominant species found in the granules.