Bismuth oxyhalide, usually employed as a photocatalyst, has not been tested as an activator of peroxide for water purification. This work explores the potential application of bismuth oxyhalide (BiOX, X = Cl, Br, I)-activated peroxide (H₂O₂; peroxymonosulfate (PMS) and peroxydisulfate) systems for the degradation of carbamazepine (CBZ) in water destined for drinking water. BiOBr showed the highest activity toward the peroxides investigated, especially toward PMS. The most efficient combination, BiOBr/PMS, was selected to further research predominant species responsible for CBZ degradation and toxicity of transformation products. With repeated use of BiOBr, low bismuth-leaching and subtle changes in crystallinity and activity were observed. CBZ degradation was primarily (67.3%) attributable to attack by sulfate radical. Toxicity test and identification of the oxidation products indicated some toxic intermediates may be produced. A possible degradation pathway is proposed. Besides substitution of the hydroxyl groups on the surface of the catalyst particles, PMS’s complexation with the lattice Bi(III) through ion exchange with interlayer bromide ion was involved in the decomposition of PMS. The Bi(III)−Bi(V)−Bi(III) redox cycle contributed to the efficient generation of sulfate radicals from the PMS. Our findings provide a simple and efficient process to produce powerful radicals from PMS for refractory pollutant removal.