In biological wastewater treatment, high lipid concentrations can inhibit the activity of microorganisms critical to the treatment process and cause undesirable biomass flotation. To reduce the inhibitory effects of high lipid concentrations, a two-phase anaerobic system, consisting of an anaerobic sequencing batch reactor (ASBR) and an upflow anaerobic sludge blanket (UASB) reactor in series, was applied to synthetic dairy wastewater treatment. During 153 days of operation, the two-phase system showed stable performance in lipid degradation. In the ASBR, a 13% lipid removal efficiency and 10% double-bond removal efficiency were maintained. In the UASB, the chemical oxygen demand (COD), lipid, and volatile fatty acid (VFA) removal efficiencies were greater than 80%, 70%, and 95%, respectively, up to an organic loading rate of 6.5 g COD/l/day. No serious operational problems, such as significant scum formation or sludge washout, were observed. Protein degradation was found to occur prior to degradation during acidogenesis.