The effect of methanol on the methanogenic fermentation of propionate and the growth of granular methanogenic sludge on a methanol-propionate mixture was studied. Degradation of propionate was markedly inhibited by the addition of methanol (0.5 to 8.6 g/l) to the synthetic propionate basal wastewater. When the methanol was completely consumed by methanol-degrading bacteria, propionate degradation was restored. Upflow anaerobic sludge blanket (UASB) reactors were operated at a volumetric loading rate of 7.3 g propionate/l.d with and without addition of methanol at a space velocity of 2.2 d(-1). In a run of propionate basal wastewater, a propionate removal efficiency of more than 96% could be maintained, while efficiency decreased gradually to 25% with increasing methanol concentrations up to 8.6 g/l, giving methanol removal efficiencies of more than 85%. In all runs, granular growth of methanogenic sludge occurred successfully, and larger-sized granules were obtained on methanol-propionate mixtures rather than on propionate basal wastewater. Microscopic observation and identification of corrinoid showed that Methanosarcina spp. was the predominant species of methanol-degrading bacteria, indicating that methanol was directly converted to methane. The results indicated that spontaneous growth of granules occurred on methanol-propionate mixtures and that methanol inhibition was due to the toxicity of methanol to propionate-degrading bacteria.