Compared to the conventional activated sludge, granular sludge has many advantages like good settling ability, high biomass retention and ability to withstand a high organic loading rate. In this study, the effects of boric acid and chitosan addition on granule formation was investigated in a novel Custom-made upflow aerobic granular sludge reactor for 22 days. According to the microscopic results, granulation in all reactors started at 5-7 days. The polymerase chain reaction-denaturing gradient gel electrophoresis (PCR-DGGE) results indicate the evolution of the bacterial community during the granulation process. In addition, high pressure liquid chromatography (HPLC) analysis showed that 100 mg/L of terephthalic acid (TA) was totally degraded in all reactors during 24 hours period. To date, chitosan was generally used in anaerobic granulation studies. Thus, there is little known about the role of chitosan in aerobic granulation. The findings in this study constitute important information about the process of granule formation and the factors that are essential to aerobic granulation.