Xylitol is a white crystalline, amorphous sugar alcohol and low-calorie sweetener. Xylitol prevents demineralization of teeth and bones, otitis media infection, respiratory tract infections, inflammation and cancer progression. NADPH generated in xylitol metabolism aid in the treatment of glucose-6-phosphate deficiency-associated hemolytic anemia. Moreover, it has a negligible effect on blood glucose and plasma insulin levels due to its unique metabolism. Its diverse applications in pharmaceuticals, cosmetics, food and polymer industries fueled its market growth and made it one of the top 12 bio-products. Recently, xylitol has also been used as a drug carrier due to its high permeability and non-toxic nature. However, it become a challenge to fulfil the rapidly increasing market demand of xylitol. Xylitol is present in fruit and vegetables, but at very low concentrations, which is not adequate to satisfy the consumer demand. With the passage of time, other methods including chemical catalysis, microbial and enzymatic biotransformation, have also been developed for its large-scale production. Nevertheless, large scale production still suffers from high cost of production. In this review, we summarize some alternative approaches and recent advancements that significantly improve the yield and lower the cost of production.