We present a new method for achieving chemical reactions induced by plasmas with liquids—an in-liquid arc plasma jet system—designed to have a few advantages over the existing methods. High-speed imaging and optical emission spectroscopy were adopted to highlight the physical aspects of the in-liquid arc plasma jet system, and the feasibility of the system was investigated in a wastewater treatment case with phenol as the model contaminant. We found that the specific energy input is a reasonable parameter by which to characterize the overall process. The phenol removal reaction could be modeled as a pseudo-first-order reaction, and the reaction constant became smaller as the phenol concentration increased. However, complete decomposition of the phenol into water and carbon dioxide required very high energy because the final intermediate, oxalic acid, is relatively stable. Detailed chemical and physical analyses, including byproducts, ions, solution acidity, and conductivity, were conducted to evaluate this new method for use in the appropriate applications.