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The current study presented a novel process of biogas upgrading to biomethane (higher than 97%) based on anaerobic sludge and zero-valent iron (ZVI) system. When ZVI was added into an aquatic system with anaerobic granular sludge (AnGrSl) under anaerobic abiotic conditions, H2 was generated. Then, the H2 and CO2 were converted by the hydrogenotrophic methanogens to CH4. Biogas upgrading to biomethane was achieved in 4 days in the AnGrSl system (50 g L−1 ZVI, initial pH 5 and 20 g L−1 NaHCO3). In this system, when zero-valent scrap iron (ZVSI) was added instead of ZVI, a more extended period (21 days) was required to achieve biogas upgrading. X-ray diffraction (XRD) analysis revealed that the materials in a reactor with CO2 or biogas headspace, exhibited a mixture of ferrite and the iron carbonate phase of siderite (FeCO3), with the latter being the dominant phase. VOCs analysis in raw biogas (in the system of anaerobic sludge and ZVI) highlighted the reduction of low mass straight- and branched-chain alkanes (C6–C10). Also, H2S and NH3 were found to be substantially reduced when the anaerobic sludge was exposed to ZVI compared to the cases where ZVI was not added. This study found that simultaneously with biogas upgrading, VOCs, H2S and NH3 can be removed in a system of ZVI or ZVSI and AnGrSl under aquatic anaerobic conditions. [ABSTRACT FROM AUTHOR]