Seven phylogenetically diverse phenol-degrading bacterial strains designated as P1 to P7 were isolated from the industry-effluent dump sites of an industrial area near Taihu Lake, China. Through the 16S rDNA sequence analysis, these strains were widely distributed among five different genera: Rhodococcus (P1), Pseudomonas (P2–P4), Acinetobacter (P5), Alcaligenes (P6), and Microbacterium (P7). All seven isolates were capable of growing with phenol as the sole carbon source. Strain P7 was found to be a novel phenol-degrading strain by detailed morphological, physiological and biochemical characteristic analysis as well as the 16S rDNA sequence analyses, and was named Microbacterium oxydans LY1 (M. oxydans LY1 in its short form). Degradation experiments of phenol at various initial concentrations (20–1,000 mg/L) revealed that phenol is an inhibitory substrate to M. oxydans LY1. In a batch culture experiment, more than 95% of the phenol (500 mg/L) was degraded by M. oxydans LY1 at 30°C, pH 7.0 and 120 rpm within 88 h. Phenol concentration higher than 200 mg/L was found to inhibit the bacterial growth. The growth kinetics correlated well with the Haldane model with μmax (maximum specific cell growth rate) = 0.243 h−1, Ks (saturation constant) = 25.7 mg/L, and Ki (self-inhibition constant) = 156.3 mg/L. This is the first report of the ability of M. oxydans to degrade phenol, and the results could provide important information for bioremediation of phenol-contaminated environments.