Extracellular cellobiase activity of Termitomyces clypeatus increased from 2.9 U ml(-1) to 4.4 and 4.1 in presence of dithiothreitol (DTT) and beta-mercaptoethanol (ME), respectively, with a decrease in K-m from 0.4 to 0.3 mM (DTT) and 0.35 mM (ME). Catalysis was further enhanced if the reduced enzyme was alkylated and activity increased from 11.4 U ml(-1) (control) to 15.2 (DTT+N-ethylmaleimide) and 15.3 (DTT+iodoacetamide) using p-nitrophenyl-beta-d-glucopyranoside and from 14.6 U ml(-1)(control) to 21.9 (DTT+N-ethylmaleimide) and 18.7 (DTT+iodoacetamide) using cellobiose. The reduced enzyme showed 17 % lesser glucose inhibition. CD and tryptophan fluorescence showed no change in secondary structure was caused by DTT up to 50 mM. Cysteine content of the enzyme was 24 %. It is postulated that reduction of disulphide bonds allows better substrate affinity for cellobiase. The studies describe a novel and simple method to increase cellobiase activity for industrial applications.