In the process of producing ethanol from lignocellulosic materials, compounds inhibitory to enzymatic hydrolysis and fermentation are generated during the pretreatment of the wood. In an industrial process, these compounds will accumulate due to the recirculation of process streams. The inhibitory effects of the accumulation of volatile and nonvolatile compounds released during stream pretreatment on enzymatic hydrolysis and fermentation were studied. The volatile compounds did not affect either the enzymatic hydrolysis or the fermentation significantly even at high concentrations. In contrast, the nonvolatile compounds severely affected both the hydrolysis and the fermentation : the effect was more pronounced in the latter case. For the effective use of a lignocellulosic material as a substrate for ethanol production, the nonvolatile compounds must thus be removed.