During hydrolysis of lignocellulosic materials a wide range of compounds which are inhibitory to microorganisms are formed or released. Based on their origin the inhibitors are usually divided in three major groups: weak acids, furan derivatives, and phenolic compounds. These compounds limit efficient utilisation of the hydrolysates for ethanol production by fermentation. If the inhibitors are identified and the mechanisms of inhibition elucidated, fermentation can be improved by developing specific detoxification methods, choosing an adapted microorganism, or optimising the fermentation strategy. The present review discusses the generation of inhibitors during degradation of lignocellulosic materials, and the effect of these on fermentation yield and productivity. Inhibiting mechanisms of individual compounds present in the hydrolysates and their interaction effects are reviewed.