The aerobic granular sludge (AGS) technology has shown a great potential for effectively removing oxytetracycline (OTC) from wastewater in an environmentally friendly way. In this study, the removal mechanism of OTC by the AGS process was investigated. The results showed that AGS has adsorption behavior to OTC and biodegradation at the same time. The adsorption process of OTC by AGS that before acclimation fits the pseudo-second-order kinetic model and the adsorption process by AGS that after acclimation complied well with the pseudo-first-order kinetic model. The adsorption included the boundary layer diffusion, the diffusion of OTC in AGS pores, and the adsorption of OTC on the inner surface of AGS. The adsorption capacity of AGS to OTC was affected by the mixed liquor suspended solids (MLSS) concentration of AGS. When the AGS concentration was 10 g/L MLSS, the adsorption effects of AGS on OTC were better. AGS showed outstanding biodegradation abilities after its adaptation to OTC, and the biodegradation ratio of AGS to OTC was 77%. Thirteen kinds of intermediate products formed during OTC degradation were detected, and accordingly, the biodegradation pathway of OTC was constructed. The results will promote the wide application of AGS biological treatment technology.