Phanerochaete chrysosporium is a wood-rot fungus that is capable of degrading lignin via its lignolytic system. In this study, an environmentally friendly fungal pretreatment process that produces less inhibitory substances than conventional methods was developed using P. chrysosporium and then evaluated by various analytical methods. To maximize the production of manganese peroxidase, which is the primary lignin-degrading enzyme, culture medium was optimized using response surface methodologies including the Plackett–Burman design and the Box–Behnken design. Fermentation of 100 g of rice straw feedstock containing 35.7 g of glucan (mainly in the form of cellulose) by cultivation with P. chrysosporium for 15 days in the media optimized by response surface methodology was resulted in a yield of 29.0 g of glucan that had an enzymatic digestibility of 64.9% of the theoretical maximum glucose yield. In addition, scanning electronic microscopy, confocal laser scanning microscopy, and X-ray diffractometry revealed significant microstructural changes, fungal growth, and a reduction of the crystallinity index in the pretreated rice straw, respectively. When the fungal-pretreated rice straw was used as a substrate for ethanol production in simultaneous saccharification and fermentation (SSF) for 24 h, the ethanol concentration, production yield and the productivity were 9.49 g/L, 58.2% of the theoretical maximum, and 0.40 g/L/h, respectively. Based on these experimental data, if 100 g of rice straw are subjected to fungal pretreatment and SSF, 9.9 g of ethanol can be produced after 96 h, which is 62.7% of the theoretical maximum ethanol yield. Biotechnol. Bioeng. 2009; 104: 471–482 © 2009 Wiley Periodicals, Inc.