A 115-day experiment of composting oily sludge with straw and organic manure was carried out. During the process, dynamics of total petroleum hydrocarbon (TPH) content, temperature, C/N/P ratio and population of functional microorganisms were monitored, and composition and biotoxicity of petroleum waste were analyzed before and after composting. Results show that TPH content decreased from 123±1 g kg^-1 to 71.7±0.7 g kg^-1, demonstrating a degradation rate of 42%, which was 2.5 times high than CK (without composting). The composting treatment reached the highest temperature, 50℃ on D21 and showed a decreasing C/N/P ratio. The counts of hydrocarbon degraders and aromatic hydrocarbon degraders in the composted sludge increased by about 2 orders of magnitudes compared with those in the uncomposted sludge. Moreover, EC50 in the oily sludge increased from 1.77±0.28 mg ml^-1 before composting to 2.76±0.38 mg ml^-1 after composting, indicating a decrease in biotoxicity of the sludge.