Simultaneous saccharification and co-fermentation (SSCF) of waste paper sludge to ethanol was investigated using two recombinant xylose-fermenting microbes: Zymomonas mobilis 8b and Saccharomyces cerevisiae RWB222. S. cerevisiae RWB222 produced over 40 g/L ethanol with a yield of 0.39 g ethanol/g carbohydrate on paper sludge at 37°C, while similar titers and yields were achieved by Z. mobilis 8b at 30°C. Both S. cerevisiae RWB222 and Z. mobilis 8b exhibited decreasing cell viability at 37°C when producing over 40 g/L ethanol. A high ethanol concentration can account for S. cerevisiae RWB222 viability loss, but ethanol concentration was not the only factor influencing Z. mobilis 8b viability loss at 37°C. Over 3 g/L residual glucose was observed at the end of paper sludge SSCF by Z. mobilis 8b, and a statistical analysis revealed that a high calcium concentration originating from paper sludge, a high ethanol concentration, and a high temperature were the key interactive factors resulting in glucose accumulation. The highest ethanol yields were achieved by SSCF of paper sludge with S. cerevisiae RWB222 at 37°C and Z. mobilis 8b at 30°C. With good sugar consumption at 37°C, S. cerevisiae RWB222 was able to gain an improvement in the polysaccharide to sugar yield compared to that at 30°C, whereas Z. mobilis 8b at 30°C had a lower polysaccharide to sugar yield, but a higher sugar to ethanol yield than S. cerevisiae. Both organisms under optimal conditions achieved a 19% higher overall conversion of paper sludge to ethanol than the non-xylose utilizing S. cerevisiae D5A at its optimal process temperature of 37°C. Biotechnol. Bioeng. 2010;107: 235–244. © 2010 Wiley Periodicals, Inc.