Microbial fuel cell (MFC) technology is anticipated to be a practical alternative to the activated sludge technique for treating domestic and industrial effluents. The relevant literature mainly focuses on developing the systems and materials for maximum power output, whereas understanding the fundamental electrochemical characteristics is inadequate. This experimental study uses a double-chamber MFC having graphite electrodes and an anion-exchange membrane to investigate the electrochemical process limitations and the potential of bioelectricity generation and dairy effluent treatment. The results revealed an 81% reduction in the chemical oxygen demand (COD) in 10 days of cell operation, with an initial COD loading of 4520 mg/L. The third day recorded the highest open circuit voltage of 396 mV, and the maximum power density of 36.39 mW/m2 was achieved at a current density of 0.30 A/m2. The electrochemical impedance spectroscopy analysis disclosed that the activation polarization of the aerated cathode was the primary factor causing the cell’s resistance, followed by the ohmic and anodic activation overpotentials.