Groundwater pollution poses a serious threat to the main source of clean water globally. Nanoparticles have the potential for remediation of polluted aquifers; however, environmental safety concerns associated with in situ deployments of such technology include potential detrimental effects on microorganisms in terms of toxicity and functional disruptions. In this work, we evaluated a new and ecofriendly approach using carbon dots (CDs) as Fenton-like catalysts to catalyse the degradation of dye-containing groundwater samples. This investigation aimed at evaluating the efficacy of a novel remediation technology in terms of dye degradation and toxicity reduction while assessing its impacts on aquatic microorganisms. Uncontaminated Australian groundwater samples were spiked with methylene blue and incubated in the dark, at 18 °C, under slow agitation, using CDs at 0.5 mg mL−1 and H2O2 at 73.5 mM for 25 h. The dye degradation rate was determined as well as the toxicity of the treated solutions using the Microtox® bioassay. Further, to determine the changes in the groundwater microbial community, 16 S rRNA sequencing was used and evenness and diversity indices were analysed using Pielou's evenness and Simpson index, respectively. This study revealed that dye-containing groundwater were effectively treated by CDs showing a degradation rate of 78–82% and a significant 4-fold reduction in the toxicity. Characterisation of the groundwater microbiota revealed a predominance of at least 60% Proteobacteria phylum in all samples where diversity and evenness were maintained throughout the remediation process. The results showed that CDs could be an efficient approach to treat polluted groundwater and potentially have minimum impact on the environmental microbiome.