This study investigated the performance and nitrous oxide (N₂O) emission dynamics of algal-bacterial granular sludge (ABGS) cultivated in a 40 L sequencing batch photobioreactor (SBPBR) treating real domestic wastewater, without initial external inoculum. ABGS formation was successfully achieved and remained stable over 180 days, with stable granule structure (> 1000 µm), good settling properties (SVI₃₀ of 42 mL· gVSS⁻¹), and chlorophyll-a content of 1.2 ± 0.1 mg· gVSS⁻¹. The system remained resilient to disturbances, including tubifex proliferation, confirming the structural viability of ABGS under non-sterile conditions. Regarding treatment performance, the reactor achieved consistent COD removal (> 80 %) and efficient ammonium removal (> 97 %) after microbial community adaptation. However, phosphorus removal was moderate (52 %), limited by the lack of anaerobic cycling and absence of excess sludge removal. N2O dynamics were monitored under four operational scenarios: low/high dissolved oxygen (DO) (2–3 and 6–7 mg· L⁻¹) and with/without light. N₂O production on liquid phase was mainly influenced by DO concentration, as lower DO levels resulted in higher N₂O emissions, while light had only a minor effect on its dynamics. However, under high DO conditions (10 L· min⁻¹, kLa = 283 h⁻¹), N₂O in the gas phase (emission factor, EF) reached 3.4 %, which was considerably higher than under low DO (3 L· min⁻¹, kLa = 100 h⁻¹), where EF remained below 1 %. This outcome indicates that oxygen availability is the dominant driver of N₂O formation, with light exerting only a secondary influence. These results emphasize the dual control of N₂O by microbial pathways and physical mass transfer, underscoring the need to optimize aeration strategies in ABGS reactors to balance nitrogen removal and greenhouse gas mitigation.