A novel approach of combining production of ethanol and xylanase from waste fiber sludge by sequential fermentation with different microorganisms was investigated. Waste fiber sludge, a waste stream from pulp mills and lignocellulose-based biorefineries, mainly consists of cellulose and other wood components, such as lignin and hemicellulose. Without pretreatment, fiber sludge was enzymatically hydrolyzed to monosaccharides, primarily glucose and xylose. In the first of two sequential fermentation steps, the fiber sludge hydrolysate was fermented to ethanol with Saccharomyces cerevisiae. After 9.5 h of fermentation, the ethanol productivity was 3.3 g/L/h for the fiber sludge hydrolysate compared to 2.2 g/L/h for a reference fermentation of a synthetic sugar solution. The final ethanol yield was, however, similar. After the fermentation, ethanol was recovered by distillation. In a second fermentation step, the spent fiber sludge hydrolysate (the stillage), which was rich in xylose, was used as growth medium for recombinant Aspergillus niger expressing the xylanase-encoding Hypocrea jecorina xyn2 gene. The spent fiber sludge hydrolysate served as an excellent growth medium for the xylanase-producing fungus, which generated higher xylanase activity in the spent fiber sludge hydrolysate (8,300 nkat/mL after 11 days) than in standard medium with similar monosaccharide content (1,300 nkat/mL after 11 days). The results indicate that waste fiber sludge can be converted to liquid biofuel and enzymes as co-products in lignocellulose-based biorefineries.