BACKGROUND Cellobiose and xylose co-fermentation holds promise for efficiently producing biofuels from plant biomass. Cellobiose phosphorylase (CBP), an intracellular enzyme generally found in anaerobic bacteria, cleaves cellobiose to glucose and glucose-1-phosphate, providing energetic advantages under the anaerobic conditions required for large-scale biofuel production. However, the efficiency of CBP to cleave cellobiose in the presence of xylose is unknown. This study investigated the effect of xylose on anaerobic CBP-mediated cellobiose fermentation by Saccharomyces cerevisiae. RESULTS Yeast capable of fermenting cellobiose by the CBP pathway consumed cellobiose and produced ethanol at rates 61% and 42% slower, respectively, in the presence of xylose than in its absence. The system generated significant amounts of the byproduct 4-O-β-d-glucopyranosyl-d-xylose (GX), produced by CBP from glucose-1-phosphate and xylose. In vitro competition assays identified xylose as a mixed-inhibitor for cellobiose phosphorylase activity. The negative effects of xylose were effectively relieved by efficient cellobiose and xylose co-utilization. GX was also shown to be a substrate for cleavage by an intracellular β-glucosidase. CONCLUSIONS Xylose exerted negative impacts on CBP-mediated cellobiose fermentation by acting as a substrate for GX byproduct formation and a mixed-inhibitor for cellobiose phosphorylase activity. Future efforts will require efficient xylose utilization, GX cleavage by a β-glucosidase, and/or a CBP with improved substrate specificity to overcome the negative impacts of xylose on CBP in cellobiose and xylose co-fermentation.