The efficiency and performing of external circulation up-flow anaerobic sludge blanket reactor (UASB) in dealing with algae-laden water from Taihu Lake was studied for the high organic matter concentration of algae-laden water. The test results showed that, using naturally decomposed algae-laden water for about 5~7 d as influent , the external circulation UASB could be completely started and remained stable, when the reactor ,which was inoculated sludge from municipal sewage treatment plant ,was operated at HRT of 5 d,temperature of （32 ±1） ℃. Based on declining HRT, increasing COD concentration phasedly, the organic load of the algae-laden water was increased to 3 kgCOD/(m3·d), with a stable COD removal of 75% and a gas production rate of 0.75 L/(L·d), indicating the stability and performance of the external circulation UASB treating the water. Observed by SEM, the granular sludge was found in the stabilization stage with coupled growing micro-organisms such as filamentous bacteria, rod-shaped bacteria, and spherical bacteria.