The production of pulp and paper is associated with the generation of large quantities of wastewater that has to be purified to avoid severe pollution of the environment. Wastewater purification in pulp and paper mills combines sedimentation, biological treatment, chemical precipitation, flotation and anaerobic treatment, and the specific combination of techniques is determined by the local conditions. Wastewater treatment generates large volumes of sludge that after dewatering can be incinerated and thus used for bio-energy production. Sludge is currently viewed as biofuel of poor quality due to its high water content, and some mills treat it solely as a disposal problem. Two strategies have been identified as feasible options to improve the energy efficiency of sludge management. One is drying using multi-effect evaporation followed by incineration. The other is anaerobic digestion of the wet sludge to produce methane. This thesis explores the energy balances of sludge management strategies in pulp and paper mills with special focus on anaerobic digestion. The first part consists of a system analysis, used to evaluate some wastewater treatment processes and sludge management, and the second part of empirical studies of anaerobic digestion of pulp and paper mill sludge. It was shown that the use of energy for aeration in aerobic biological treatment should be kept to the minimum required for acceptable quality of the processed water. Additional aeration for reduction of the generated sludge will only result in reduced energy generation in a subsequent methane generation stage. In the second part of the thesis, it is shown that anaerobic digestion is a feasible option for sludge management as it leads to production of high value biogas. Co-digestion with grass silage, cow/pig manure or municipal sewage sludge should then be used to counteract the low nitrogen content of pulp and paper mill sludge.