The impact of sludge interchange rate (SIR) on sludge reduction by oxic-settling-anoxic (OSA) process was investigated. The sludge yield of an OSA system (a sequencing batch reactor, SBR, integrated with external anoxic reactors) was compared to that of a control (an SBR attached to a single-pass aerobic digester). SIR (%) is the percentage by volume of sludge returned from the external reactor into the main bioreactor of the OSA, and was varied from 0-22%. OSA achieved greater sludge reduction when fed with unsettled sewage (sCOD=113 mg/L) rather than settled sewage (sCOD=60 mg/L). The SIR of 11% resulted in the highest OSA performance. At the optimum SIR, higher volatile solids destruction and nitrification/denitrification (i.e., conversion of destroyed volatile solids into inert forms) were observed in the external anoxic and intermittently aerated (i.e., aerobic/anoxic) reactors, respectively. Denitrification in the aerobic/anoxic reactor was inefficient without SIR. Effluent quality and sludge settleability were unaffected by SIR.