The thermotolerant yeast strain, Kluyveromyces marxianus IMB3, was shown to be capable of limited growth on cellobiose containing media at 45 degrees C. Growth, sugar utilization and ethanol production were shown to increase in the presence of exogenously added thermostable fungal beta-glucosidase. During active growth of the organism on cellobiose-containing media, beta-glucosidase activity was detected in cell lysate preparations with only minor amounts of activity present in the extracellular culture filtrate. The results suggest that limitations in ethanol production by this organism during growth on cellobiose containing media may be overcome by addition of exogenously added beta-glucosidase which results in increased substrate access to the biocatalytic unit.