Second generation bioethanol is produced by fermentation of lignocellulose biomass derived from forest and agricultural byproducts, e.g. wood chips and corn stover. This substrate does not compete with food and feed production, however compared to starch based ethanol production degradation of lignocellulose is more complicated and a large fraction of the biomass consists of non-hexose carbohydrates. Next to glucose the second most abundant sugar in lignocellulose biomass is xylose, which can compose as much as 40 % of total carbohydrate content. Fermentation of xylose to ethanol has been achieved in the yeast S. cerevisiae by genetic engineering. A major limitation of xylose utilization is however the low ethanol productivity compared to glucose. In the current study, the cofactor specificity of the enzyme xylose reductase (XR) was altered in recombinant S. cerevisiae by protein engineering. The mutated enzyme displayed increased affinity for NADH compared to NADPH which improved cofactor recycling in the initial xylose catabolism. As a consequence of the mutation, the ethanol productivity from xylose was increased several times and the ethanol yield from xylose was improved to the same level as the one encountered for glucose. Due to the improved ethanol productivity, the strain harboring the mutated enzyme acquired the capacity of anaerobic growth on xylose as sole carbon source. Since a rational genetic engineering approach was taken, the improved traits of the mutated strain should be readily transferable to an industrial S. cerevisiae strain.