The aim of this study was to evaluate municipal sludge (MS) for its toxic potential by Allium cepa and also to understand the effect of vermicomposting on the reduction of toxicity, if any. Municipal sludge (MS) and vermicomposted sludge (VS) were evaluated. Elemental analysis of MS showed the presence of heavy metals. Morphological studies of A. cepa roots indicated coiled and wavy roots on exposure to MS but no root abnormality was reported in VS. Under genotoxic studies, inhibition in mitotic index was concentration dependent and the control values of 11.76 gradually reduced to 5.40 at 10% MS leachate whereas mitotic index was increased to 9.48 at 10% VS leachate. Exposure of leachate induced chromosomal aberrations, micronucleus formation and binucleate cells in a dose dependent manner. However, mitotic aberrations were observed significant at 10% MS leachate but they were insignificant at 10% VS leachate. The wet and dry weight of roots, root elongation and chlorophyll contents were reduced as the concentration of leachate increased but VS leachate did not produce considerable reduction. The wet and dry weight of A. cepa roots were 20.312g and 3.250g respectively and they were reduced to 10.82g and 1.68g respectively at 10% MS leachate but VS leachate showed an increase to 18.127g and 2.53g respectively. Total chlorophyll in control, 10% MS leachate and 10% VS leachate were 0.245g, 0.162g and 0.214g respectively. It could be concluded that the MS was toxic to a remarkable extent but vermicomposting of sludge might be beneficial for bioremediation and recommended before land filling.