A novel biobarrier, whose reaction media consist of functional microbes, peat and coarse sand, is tested in laboratory to study the effect and the related mechanism in remediation of petroleum hydrocarbon contaminated groundwater. The results show that the removal efficiency for BTEX, naphthalene hydrocarbons and phenanthrene are 83.6%~99.85%, in which 71.23%~99.71% contaminants are removed at the first half part of biobarrier. The peat and functional microbes function steadily in contaminant sorption and biodegradation. 32.63%~77.98% BTEX and 97.14%~99.81% target PAHs are absorbed by peat and 18.96%~50.98% BTEX and almost all of the peat-absorbed petroleum hydrocarbon contaminants are degraded by microbes. Contaminant biodegradation can efficiently prolong the sorption life of peat barrier, and the efficient nutrients supply from peat to functional microbes can maintain the biomass at a relatively high level in the biobarrier, i.e. about 3.46×106~6.16×109 per gram dry media. Therefore, the novel biobarrier technology can be efficiently used in in-situ remediation of petroleum hydrocarbon contaminated groundwater.