This paper aims to provide a full understanding of the sludge reduction mechanisms in the oxic–settling–anaerobic (OSA) process and presents an evaluation of the sludge reduction efficiencies and sludge characteristics in this process compared to the conventional activated sludge process. Fifty-eight percent reduction in observed yield in the OSA process was achieved compared to the control system at the end of the operational period with no deterioration of effluent quality. The settleability of sludge in the OSA process was also found to be better than that of the control system in terms of sludge volume index. In long-term operation, capillary suction time and specific resistance to filtration values confirmed that the OSA process showed good filterability characteristics. The results of batch experiments showed that higher endogenous respiration in the systems might lead to lower sludge production and that energy uncoupling had only a limited impact on sludge reduction.