Birch wood was used as raw material to study the effect of steaming pretreatment on the characteristics, enzymatic hydrolysis and fermentation of cellulose and hemicellulose. The cellulose remained undissolved in the fibres after steaming, but the degree of polymerization decreased and the surface area increased with increasing steaming temperature. The yield in enzymatic hydrolysis with T. reesei and A. niger cellulases increased from 40 to 75% of theoretical when the pretreatment temperature was increased from 170 to 210°C at a residence time of 10 minutes. The glucose released was fermented to ethanol by yeast without interference of toxic compounds. After steaming, the hemicellulose was mainly in the form of xylo-oligomers. The average chain length decreased with increasing temperature. Only the monomeric sugars were fermented to ethanol by Fusarium oxysporum. After steaming at 210°C toxic decomposition products inhibited the fermentation completely. In aerobic conditions also the xylo-oligomers were metabolized.