This work deals with the application of encapsulation technology to eliminate inhibition by D-limonene in fermentation of orange wastes to ethanol. Orange peel was enzymatically hydrolyzed with cellulase and pectinase. However, fermentation of the released sugars in this hydrolyzate by freely suspended S. cerevisiae failed due to inhibition by limonene. On the other hand, encapsulation of S. cerevisiae in alginate membranes was a powerful tool to overcome the negative effects of limonene. The encapsulated cells were able to ferment the orange peel hydrolyzate in 7 h, and produce ethanol with a yield of 0.44 g/g fermentable sugars. Cultivation of the encapsulated yeast in defined medium was successful, even in the presence of 1.5% (v/v) limonene. The capsules' membranes were selectively permeable to the sugars and the other nutrients, but not limonene. While 1% (v/v) limonene was present in the culture, its concentration inside the capsules was not more than 0.054% (v/v).