The effect of direct addition of chlorine dioxide (ClO2) into a repeatedly alternating aeration/non-aeration sequencing batch reactor (SBR) on its sludge reduction and process performance was investigated. The experimental results showed that the sludge reduction efficiency was 32.9% and the observed growth yield (Yobs) of SBR was 0.11 kg VSS (volatile suspended solids) /kg COD (chemical oxygen demand) for 80 days’ operation at the optimum ClO2 dosage of 2.0 mg/g TSS (total suspended solids). It was speculated that cell lysis and cryptic growth, uncoupled metabolism and endogenous metabolism were jointly responsible for the sludge reduction in this study. COD, NH3-N, total nitrogen (TN) and total phosphorus (TP) in the effluent increased on average 29.47, 4.44, 1.97 and 0.05 mg/L, respectively. However, the effluent quality still satisfied the first-class B discharge standards for municipal wastewater treatment plants in China. In that case, the sludge maintained fine viability with the specific oxygen uptake rate (SOUR) being 14.47 mg O2/(g VSS·h) and demonstrated good settleability with the sludge volume index (SVI) being 116 mL/g. The extra cost of sludge reduction at the optimum ClO2 dosage was estimated to be 2.24 CNY (or 0.36 dollar)/kg dry sludge.