Textile effluent is characterized by high colour, chemical oxygen demand and conductivity due to presence of a large number of recalcitrant compounds. The effluent is often discharged without an effective treatment leading to contamination of water bodies. In the present study, a combination of mediator assisted laccase and chemical treatment was used for decolorization of effluent from a local textile mill in a continuous enzyme membrane reactor (EMR). Treatment of the effluent first with laccase and ABTS (2,2'-azinobis-(3-ethylbenzothiazoline-6-sulfonic acid)) lead to about 60% decolorization but was accompanied by membrane fouling. Addition of alum further coagulated 90% of the residual colour but the process was associated with dye sludge formation and ABTS could not be recovered from the treated effluent. Reversal of the treatment sequence was effective in that 85% decolorization was achieved in the EMR and the process could be operated for over a period of 15 days. No sludge formation was noticed and membrane fouling was negligible. Most importantly, about 60% ABTS could be recovered from the treated effluent. Analysis of the treated effluent by mass spectrometery indicated extensive breakdown of the dye molecules by laccase and ABTS and the breakdown products were neither toxic nor mutagenic as assessed by measurement of the oxygen consumption rate and the standard Ames test. © 2014 Elsevier B.V.