Xylitol, a five carbon sugar alcohol, occurs widely in nature but it is also a normal intermediate in human metabolism. As an alternative sweetener, it is recommended for diabetics and for the prevention of dental caries. Xylitol is currently produced chemically on a large scale. Microbial production is lately becoming more attractive since the downstream processing is expected to be cheaper. Among microorganisms, yeasts are the best xylitol producers, particularly those belonging to the genus Candida. The key enzymes for xylitol production in yeasts are D-xylose reductase which, using either NADH or NADPH, reduces D-xylose to xylitol, and predominantly, NAD-linked xylitol dehydrogenase which reoxidizes xylitol to D-xylulose. Xylitol accumulation in yeasts is sensitive to environmental conditions such as nutrition, temperature, pH, inoculum, substrate and aeration, with the last two being critical for yeast growth and fermentation. Hemicellulosic hydrolysates derived from hardwood and particularly from agricultural residues, such as sugar cane bagasse, corn cabs, wheat and rice straw, are used as feedstock for xylitol production. Due to the presence of inhibitory components, some of the hydrolysates have to be treated prior to microbial utilization. The most investigated types of processes have been batch ones, although fed-batch and immobilized systems have been characterized by the highest yields and productivities. Apart from the naturally occurring yeasts, recombinant strains of Saccharomyces cerevisiae in free and immobilized form were also investigated for xylitol production.