The bioconversion of xylose into ethanol with the yeast Pichia stipitis CBS 5773 is inhibited when 20 g/L of ethanol are present in the fermentation broth. In order to avoid this limitation, the fermentation was carried out with simultaneous recovery of product by CO2 stripping. The fermentation was also improved by attaching a side‐arm to the main body of a classical gas‐lift loop fermentor. This side‐arm increases the liquid circulation, mass transfer, and gas distribution, reducing the amount of oxygen in the inlet gas necessary to perform the fermentation of xylose under microaerobic conditions (KLa ≊ 16 h−1). The continuous stripping of ethanol from the fermentation broth in this new bioreactor system allowed the consumption of higher xylose concentrations than using Erlenmeyer shaker flasks, improved significantly the process productivity and provided a clean ethanol solution by using an ice‐cooled condenser system. Finally, a fed‐batch fermentation was carried out with a KLa = 15.8 h−1. Starting with 248.2 g of xylose, 237.6 g of xylose was consumed to produce 88.1 g of ethanol which represents 72.6% of the theoretical yield (47.2 g/L of ethanol was recovered in the condenser, while 9.6 g/L remained in the fermentation broth). © 2000 John Wiley & Sons, Inc. Biotechnol Bioeng 67: 336–343, 2000.