A novel laccase producing Basidiomycete Peniophora sp. (NFCCI-2131) was isolated from pulp and paper mill effluent. The optimal temperature and initial pH for laccase production by the isolate in submerged culture were found to be 30 and 4.6° C, respectively. Maltose (20 g l⁻¹) and tryptone (1.0 g l⁻¹) were the most suitable carbon and nitrogen sources for laccase production. Cu²⁺ (1.0 mM) and veratryl alcohol induced maximum laccase production giving 6.6 and 6.07 U/ml laccase activity, respectively. Under optimised culture conditions, 7.6 U/ml activity was obtained, which was 2.4 times higher than that was achieved in basal medium. An evaluation of the delignification efficiency of the crude enzyme in the presence of redox mediators [2,2'-azino-bis(3-ethylbenzthiazoline-6-sulphonic acid) and (1-hydroxybenzotriazole)] revealed structural changes in lignin and existence of many active centres for both chemical and biological degradation of lignin following enzymatic treatment.