Sugarcane bagasse, a cheap cellulosic waste material, was investigated as a raw material for producing lyocell fibers at a reduced cost. In this study, bagasse was dissolved in N-methylmorpholine-N-oxide (NMMO) 0.9 hydrate, and fibers were prepared by the dry jet-wet spinning method with coagulation in an aqueous NMMO solution. The effects of NMMO in 0 to 50% concentrations on the physical properties of fibers were investigated. The coagulating bath contained water/NMMO (10%) solution produced fiber with the highest drawability and highest physical properties. The cross-section morphology of these fibers reveals fibrillation due to the high degree of crystallinity and high molecular orientation. In the higher NMMO concentrated baths ( 30 to 50%), the prepared fibers were hollow inside, which could be useful to make highly absorbent materials. The lyocell fibers prepared from bagasse have a tensile strength of 510 MPa, initial modulus of 30 GPa, and dynamic modulus of approximately 41 GPa. These properties are very comparable with those of commercial lyocell fibers. (C) 2010 Wiley Periodicals, Inc. J Appl Polym Sci 119: 3152-3161, 2011