Pichia stipitis is an ascomycetous yeast that is found in association with insect larvae, and species closely related to P. stipitis are consistently isolated from the intestines of passalid beetles. Native strains of P. stipitis will produce 35 to 45 g L^-1 of ethanol from xylose with a yield of 0.38 to 0.47 g g^-1 xylose. Maximal ethanol production is obtained under microaerobic conditions with a specific ethanol production rate of 0.12-0.32 g ethanol g^-1 cells h^-1 and a volumetric productivity of 0.5-0.6 g L^-1 h^-1 under optimal conditions, although fermentation rates in flask studies are often considerably lower.  The objective of our research is to increase the specific and volumetric rates of ethanol production through genetic manipulation of P. stipitis.  We have developed a useful system for transformation that employs both auxotrophic and drug resistance markers. Targeted deletions have modified the physiological performance of P. stipitis in several ways.  Knocking out the ADH1 and ADH2 genes for alcohol dehydrogenase reduced ethanol and greatly increased xylitol production. Likewise, deleting either the XYL3 gene for D-xylulokinase, or deleting the XYL2 gene for xylitol dehydrogenase greatly increased xylitol production. We have successfully increased the specific ethanol production rate by deleting the CYC1 gene, which reduces terminal oxidative activity and diverts reductant into the fermentative pathway. Expression analyses derived from expressed sequence tag studies have given us new routes for strain development.