The development of efficient and low-cost wastewater treatment processes remains an important challenge. A microaerobic up-flow oxidation ditch (UOD) with micro-electrolysis by waterfall aeration was designed for treating real municipal wastewater. The effects of influential factors such as up-flow rate, waterfall height, reflux ratio, number of stages and iron dosing on pollutant removal were fully investigated, and the optimum conditions were obtained. The elimination efficiencies of chemical oxygen demand (COD), ammonia nitrogen (NH
4
+
-N), total nitrogen (TN) and total phosphorus (TP) reached up to 84.33 ± 2.48%, 99.91 ± 0.09%, 93.63 ± 0.60% and 89.27 ± 1.40%, respectively, while the effluent concentrations of COD, NH
4
+
-N, TN and TP were 20.67 ± 2.85, 0.02 ± 0.02, 1.39 ± 0.09 and 0.27 ± 0.02 mg l
−1
, respectively. Phosphorous removal was achieved by iron–carbon micro-electrolysis to form an insoluble ferric phosphate precipitate. The microbial community structure indicated that carbon and nitrogen were removed via multiple mechanisms, possibly including nitrification, partial nitrification, denitrification and anammox in the UOD.