The purpose of study was utilization of sugarcane bagasse, waste product of sugarcane industry, for production of xylooligosaccharides (XOS) and their evaluation of their prebiotic potential. The XOS production was carried out in two steps: alkaline extraction of xylan (5, 10 and 15%KOH and NaOH) followed by acid hydrolysis (0.25 and 0.50M H2SO4; 20, 40 and 60 min) of xylan, and quantified using high performance thin layer chromatography (HPTLC). The prebiotic potency of XOS was evaluated for probiotics viz. Lactobacillus brevis, Lactobacillus acidophilus and Lactobacillus viridescens in comparison to standard fructooligosaccharides (FOS). The chemical compositional analysis indicated that bagasse contain 28.42% hemicellulose out of which 21.46% was estimated to be xylan. Maximum yield of xylan (20.5%) was obtained with 15%NaOH treatment. The best treatments for xylan hydrolysis were found to be 0.25M H2SO4 for 20 and 40 min with concentrations of xylose, xylobiose and xylotriose to be 2.014, 2.106 and 1.228 mg ml− 1, respectively, in 20 min hydrolysis and 2.138, 1.502 and 0.824 mg ml− 1, respectively, in 40 min hydrolysis. XOS were found to be better prebiotics than standard FOS. Pure xylobiose was found to have highest positive effect on growth of all three bacteria tested indicating that effects of XOS were due to presence of xylobiose, xylotriose and XOS with higher degree of polymerization in xylan hydrolysates. Sugarcane bagasse xylan can be converted into XOS only by controlled acid hydrolysis leading to increased production of XOS which can be used as good prebiotics in drugs and food ingredients after their purification eliminating all the acidic and alkaline residues and also side products.