An extracellular laccase-producing yeast was isolated from soil and identified as Yarrowia lipolytica by its morphology and by comparison of its internal transcribed spacer rDNA gene sequence. Extracellular laccase (YlLac) from Y. lipolytica was purified to homogeneity by anion-exchange and gel filtration chromatography. YlLac is a monomeric glycoprotein with 14% carbohydrate content and a molecular mass of 67 kDa. It showed a higher catalytic efficiency towards 2,2'-Azino-bis (3-ethylbenzthiazoline-6-sulfonic acid) (k(cat)/K-m = 19.3 s(-1) mu M-1) and 2,6-dimethoxyphenol (k(cat)/K-m = 13 s(-1) mu M-1) than any other reported laccase. This enzyme was able to oxidize phenolic compounds present in pretreated rice straw. Several parameters (temperature, enzyme concentration, and mediator compounds) to enhance removal of phenolic compounds from pretreated rice straw were optimized using response surface methodology. The use of YlLac for the removal of cellulase inhibitory compounds from biomass slurries was found to be a promising approach for improving the efficiency of biorefineries. (C) 2012 Elsevier Ltd. All rights reserved.