While several researchers have investigated the anaerobic digestion (AD) of textile wastewater for dye degradation, their studies suffer from lower biogas productivity due to substrate inhibition and the occurrence of secondary pollution from digestate disposal. Hence, this study focuses on using the extract of wheat straw (WS) as a co-substrate to facilitate the dye AD process, followed by recycling the digestate sludge for biochar production. In the first study, the batch digesters were operated at different dye wastewater (DW)/WS ratios (0–50% v/v), substrate-to-inoculum ratio of 0.28–0.50 g/g, pH 7.0 ± 0.2, and 37 °C. The digester operated at a DW/WS fraction of 65/35% (v/v) showed the best chemical oxygen demand (COD) removal efficiency of 68.52 ± 3.40% with bio-CH4 of 270.52 ± 19.14 mL/g CODremoved. About 52.96 ± 3.61% of the initial COD mass was converted to CH4, avoiding inhibition caused by volatile fatty acid (VFA) accumulation. In the second experiment, the dry digestate was thermally treated at 550 °C for 2 h under an oxygen-deprived condition, yielding 0.613 ± 0.031 g biochar/g. This biochar exhibited multiple functional groups, mineral contents, and high stability (O/C = 0.193). The combined digestion/pyrolysis scenario treating 35 m3/d (106.75 kg COD/d) could maintain profits from pollution reduction, biogas, biochar, and carbon trading, obtaining a 6.5-year payback period.