Use of renewable lignocellulosic biomass for producing fuels, chemicals, and materials will offer benefits to the environment, economy, and national security. Effectively releasing the locked polysaccharides from recalcitrant lignocellulose to fermentable sugars is the greatest technological barrier to lignocellulose biorefineries. We have invented an environmentally friendly lignocellulose fractionation technology featuring modest reaction conditions (50^oC and atmospheric pressure) by sequentially applying a nonvolatile cellulose solvent (concentrated phosphoric acid), a highly volatile organic solvent (acetone), and water. The resulting amorphous cellulosic materials are hydrolyzed by cellulases with nearly theoretical sugar yields (~97% in 24 hour). The highest sugar yields can be attributed to the facts of (1) no sugar degradation during the fractionation and (2) the highest enzymatic cellulose digestibility during the amorphous cellulose hydrolysis step.  In addition to the highest yields of fermentable sugars, isolation and co-utilization of lignocellulose components (lignin, acetic acid, and hemicellulose) is vital to achieving better economy for small-size lignocellulose biorefineries. Our analysis indicates that a small-size lignocellulose biorefinery with a capacity of 100 tons per day will produce approximately 3 million gallons of ethanol plus co-products – high quality lignin and acetic acid.  Our process analysis suggests that the estimated cost of ethanol production based on lignocellulose fractionation technology is ~ $1.00-1.20/per gallon because the value of co-products, the highest sugar yields, and low enzyme use drive down ethanol production costs.