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Pulp and paper industry is one of the high priority sectors that generates large amount of solid (sludge) and liquid (paper mill effluent) wastes. Making use of this huge quantity of paper mill sludge (PMS) in an environment friendly manner is challenging and cost involving. Similarly the present wastewater treatment strategies based on physical and chemical methods encounter certain serious setbacks including secondary pollution generation with expensive mode of abatement processes. The present study aims at a “waste treats waste” strategy for the bioremediation of paper mill effluent in fluidized bed reactor (FBR) using another waste of the same industry, PMS as immobilizing matrix for Planococcus sp. TRC1, a wastewater bacterial isolate. This study simultaneously explores this isolate for the yellowish orange pigment it produces (2.3 ± 0.2 mg/gm of dry bacterial biomass) and characterizes it as a member of the pharmacologically important carotenoid pigment family via UV-Vis spectrophotometry, TLC, FT-IR and 13C NMR. The antioxidant potential of this pigment was studied by DPPH assay (IC50 = 33 ± 0.4 μg/ml) and H2O2 assay (IC50 = 147.4 ± 2.2 μg/ml). In FBR, the PMS immobilized bacteria showed removal of phenol, lignin, colour and COD from the effluent by 96%, 74%, 81% and 85% respectively after 60hr of treatment. The experimental data on immobilization fitted well with pseudo second-order (R2 = 0.955) and Freundlich adsorption isotherm (R2 = 0.996) models. The alterations in PMS before and after bacterial immobilization, as revealed by SEM and FT-IR, depicted the success of PMS as immobilization matrix. Phytotoxicity (90% seed germination) and mutagenicity studies confirmed that the treated effluent was substantially less toxic than its raw state. This study highlights a novel utilization possibility of PMS in an eco-friendly and economic way as immobilization matrix for Planococcus sp.TRC1 for paper pulp mill effluent treatment along with production of carotenoid pigment from this potential bacterial isolate as value added product.