Aerobic granules contain microorganisms that are responsible for carbon, nitrogen, and phosphorus removal in aerobic granular sludge (AGS) process in which aerobic/anoxic/anaerobic layers (from surface to core) occur in a single granule. Optimizing the aerobic granular sludge (AGS) process for granulation and efficient nutrient removal can be challenging. The aim of this study was to examine the impact of settling prior to AGS process on granulation and treatment performance of the process. For this purpose, synthetic wastewater mimicking municipal wastewater was fed directly (Stage 1), and after primary sedimentation (Stage 2) to a laboratory-scale AGS system. In full-scale wastewater treatment plants, primary sedimentation is used to remove particulate organic matter and produce primary sludge which is sent to anaerobic digesters to produce biogas. Performances obtained in both stages were compared in terms of treatment efficiency, granule settling behavior, and granule morphology. Granulation was achieved in both stages with more than 92% chemical oxygen demand (COD) removal efficiencies in each stage. High nutrient removal was obtained in Stage 1 since anaerobic phase was long enough (i.e., 50 min) to hydrolyze particulate matter to become available for PAOs. Primary sedimentation caused a decrease in influent organic load and COD/N ratio, as a result, low nitrogen and phosphorus removal efficiencies were observed in Stage 2 compared to Stage 1. With this study, the effect of the primary sedimentation on the biological removal performance of AGS process was revealed. COD requirement for nutrient removal in AGS systems should be assessed by considering energy generation via biogas production from primary sedimentation sludge.