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The oxic-settling-anaerobic (OSA) process is a promising wastewater treatment technique for efficiently reducing sludge production and improving the stability of process operation. In this paper, the possible factors of sludge reduction such as sludge decay, uncoupled metabolism, and anaerobic oxidation with low sludge production were discussed in the OSA process. It has been confirmed that sludge decay is the decisive cause in the OSA process, accounting for 66.7% of sludge production reduction. Sludge decay includes hydrolysis and acidogenesis of dead microorganisms and particle organic carbon adsorbed in sludge floc and endogenous metabolism. By batch experiments, it has been proven that there is energetic uncoupling in the OSA system since microorganisms were exposed to alternative anaerobic and aerobic environment. It accounts for about 7.5% of sludge production reduction. Soluble chemical oxygen demand (SCOD) released from the anaerobic sludge tank in the OSA process was used as the substrate for cryptic growth. The substrate was used for anoxic denitrifying, anaerobic phosphorus release, sulfate reduction, and methane production. These anaerobic reactions in the sludge anaerobic tank have lower sludge production than in the aerobic oxidation when equivalent SCOD is consumed, which may lead to approximately 23% of sludge reduction in the OSA process. It has been concluded that multiple causes resulted in the minimization of excess sludge in the OSA system. The microbial community structure and diversity of sludge samples from the CAS (conventional activated sludge) and OSA systems were investigated by 16 SrDNA PCR-DG-DGGE (polymerase chain reaction-double gradient-denaturing gradient gel electrophoresis). DGGE profile and cluster analysis showed more abundant species in the OSA system contrasting to microbial communities in the CAS system.