Guayule rubber production leaves > 80% biomass as ground bagasse, which can be hydrolyzed to release sugars but also fermentation inhibitors. Here inhibitor generation and sugar conversion by the CO2-H2O pretreatment and enzyme hydrolysis were studied. Different pretreatment conditions: 550-4900 psi, 160-195 degrees C, 10-60 min and fixed 66.7% water, generated widely varying amounts of inhibitors (per dry-bagasse mass): 0.014-0.252% hydroxymethylfurfural, 0.012-0.794% furfural and 0.17-8.02% acetic acid. The condition (195 degrees C/3400 psi/30 min) giving highest reducing sugar (86.9 +/- 1.5%) and cellulose (99.2 +/- 1.3%) conversions generated more inhibitors. Kluyveromyces marxianus fermentation showed complete growth and ethanol production inhibition at >= 14 g/L combined inhibitors. Considering both sugars and inhibitors, the optimum condition was 180 degrees C, 1800 psi and 30 min, enabling 82.8 +/- 2.8% reducing sugar, 74.8 +/- 4.8% cellulose and 88.5 +/- 6.9% hemicellulose conversions with low levels of hydroxymethylfurfural (0.07%), furfural (0.25%) and acetic acid (3.0%). The optimized CO2-H2O pretreatment gave much lower inhibitor formation and higher sugar conversion than other pretreatment methods.