Successful installations and operation of many granulation-base treatment plants all over the world in the recent years are reported. A better knowledge towards reactor operation and system performance has led to a growing interest in the technology. While the technology is well accepted and abundant research work has been carried out, insight unfolding the granulation fundamentals and its engineering applications remains unclear. This paper presents a review of some major hypotheses describing the evolvement of anaerobic granules. A number of physico-chemical hypotheses based on thermodynamics and structural hypotheses incorporating microbial considerations for anaerobic granulation have been developed. Features of anaerobic granulation and bioreactor designs are also reviewed. Advances in granulation research with respect to hydrogen production, degradation of recalcitrant or toxic compounds and emissions mitigation are delineated. Prospects and challenges of anaerobic granulation in wastewater treatment are also outlined.