Present study describes the treatment of molasses spentwash and its use as a potential low cost substrate for production of biopolymer polyhydroxybutyrate (PHB) by waste activated sludge. Fluorescence microscopy revealed the presence of PHB granules in sludge biomass which was further confirmed by fourier transform-infra-red spectroscopy (FT-IR) and (13)C nuclear magnetic resonance (NMR). The processing of molasses spentwash was carried out for attaining different ratios of carbon and nitrogen (C:N). Highest chemical oxygen demand (COD) removal and PHB accumulation of 60% and 31% respectively was achieved with raw molasses spentwash containing inorganic nitrogen (C:N ratio=28) followed by COD removal of 52% and PHB accumulation of 28% for filtered molasses containing inorganic nitrogen (C:N ratio=29). PHB production yield (Y(p/s)) was highest (0.184 g g(-1) COD consumed) for deproteinized spentwash supplemented with nitrogen. In contrast, the substrate consumption and product formation were higher in case of raw spentwash. Though COD removal was lowest from deproteinized spentwash, evaluation of kinetic parameters suggested higher rates of conversion of available carbon to biomass and PHB. Thus the process provided dual benefit of conversion of two wastes viz. waste activated sludge and molasses spentwash into value-added product-PHB.