Co-contamination of soil and water with polycyclic aromatic hydrocarbon (PAH) and heavy metals makes biodegradation of the former extremely challenging. Modified clay-modulated microbial degradation provides a novel insight in addressing this issue. This study was conducted to evaluate the growth and phenanthrene degradation performance of Mycobacterium gilvum VF1 in the presence of a palmitic acid (PA)-grafted Arquad® 2HT-75-based organobentonite in cadmium (Cd)-phenanthrene co-contaminated water. The PA-grafted organobentonite (ABP) adsorbed a slightly greater quantity of Cd than bentonite at up to 30 mg L^-1 metal concentration, but its highly negative surface charge imparted by carboxylic groups indicated the potential of being a significantly superior adsorbent of Cd at higher metal concentrations. In systems co-contained with Cd (5 and 10 mg L^-1), the Arquad® 2HT-75-modified bentonite (AB) and PA-grafted organobentonite (ABP) resulted in a significantly higher (72-78%) degradation of phenanthrene than bentonite (62%) by the bacterium. The growth and proliferation of bacteria were supported by ABP which not only eliminated Cd toxicity through adsorption but also created a congenial microenvironment for bacterial survival. The macromolecules produced during ABP-bacteria interaction could form a stable clay-bacterial cluster by overcoming the electrostatic repulsion among individual components. Findings of this study provide new insights for designing clay modulated PAH bioremediation technologies in mixed-contaminated water and soil.