A method of treating wastewater sources such as sewer systems or those from pulp and paper mills which contain biomass waste involves adding white rot fungi in the presence of glucose. While glucose may be directly added to the wastewater source, it has been found to be more economical to reduce or substantially remove color from the wastewater by additionally adding brown rot fungi in the presence of cellulose and hemi-cellulose. The addition of bacteria has also been found helpful to improve the reduction in color, biological oxygen demand, as well as chemical oxygen demand in wastewater sludge reduction.