This review highlights the potential of the pyrolysis-based biofuels production, bio-ethanol in particular, and lipid in general as an alternative and sustainable solution for the rising environmental concerns and rapidly depleting natural fuel resources. Levoglucosan (1,6-anhydrous-β-D-glucopyranose) is the major anhydrosugar compound resulting from the degradation of cellulose during the fast pyrolysis process of biomass and thus the most attractive fermentation substrate in the bio-oil. The challenges for pyrolysis-based biorefineries are the inefficient detoxification strategies, and the lack of naturally available efficient and suitable fermentation organisms that could ferment the levoglucosan directly into bio-ethanol. In case of indirect fermentation, acid hydrolysis is used to convert levoglucosan into glucose and subsequently to ethanol and lipids via fermentation biocatalysts, however the presence of fermentation inhibitors poses a big hurdle to successful fermentation relative to pure glucose. Among the detoxification strategies studied so far, over-liming, extraction with solvents like (n-butanol, ethyl acetate), and activated carbon seem very promising, but still further research is required for the optimization of existing detoxification strategies as well as developing new ones. In order to make the pyrolysis-based biofuel production a more efficient as well as cost-effective process, direct fermentation of pyrolysis oil-associated fermentable sugars, especially levoglucosan is highlly desirable. This can be achieved either by expanding the search to identify naturally available direct levoglusoan utilizers or modify the existing fermentation biocatalysts (yeasts and bacteria) with direct levoglucosan pathway coupled with tolerance engineering could significantly improve the overall performance of these microorganisms.