Deterioration of anaerobic digestion can occur with the presence of polyacrylamide (PAM) in waste activated sludge, and little information on mitigating this deterioration is currently available. In this study, simultaneous mitigation of PAM negative effects and improvement of methane production was accomplished by thermal-alkaline pretreatment. Under the optimized pretreatment conditions (i.e., 75 °C, pH 11.0 for 17.5 h), the biochemical methane potential of PAM-flocculated sludge increased from 100.5 to 210.8 mL/g VS and the hydrolysis rate increased from 0.122 to 0.187 d−1. Mechanism investigations revealed that the pretreatment not only broke the large firm floccules, improved the degradation of PAM, but also facilitated the release of biodegradable organics from sludge, which thereby provided better growth environment and enough nutrients to anaerobic microbes for methane production. The activities of key enzymes responsible for methane production and PAM degradation were greatly improved in pretreated reactor, with the accumulation of acrylamide being avoided.