The direct microbial conversion (DMC) process for the production of ethanol from lignocellulosic biomass is limited by low volumetric ethanol production rates due to the low cell densities of Clostridium thermosaccharolyticum which is a key organism for ethanol production in this process. Hence, this study focuses on the use of a continuous- culture cell recycle system to improve the volumetric ethanol productivity and yield of the fermentation of xylose by C. thermosaccharolyticum. Early experiments with the continuous-culture cell recycle system showed a two-fold improvement in volumetric ethanol productivity. However, the ethanol yield at the higher dilution rates suffered because of the large amount of lactate produced. The manipulation of two environmental parameters--iron concentration in the nutrient medium and the N(2) purge rate of the fermentor headspace--allowed a dramatic reduction in the lactate production and a simultaneous improvement in the ethanol titer and yield. Under the improved conditions of increased iron concentration (12.5 mg/L FeSO(4) x 7H(2)O) and decreased N(2) purge rate (0.1 L/min), a continuous culture of C. thermosaccharolyticum operating at a dilution rate of 0.24 h(-1) and 50% cell recycle produced 8.6 g/L ethanol and less than 1 g/L each of acetate and lactate. The volumetric ethanol productivity was 2.2 g/L/h, which is 8 times larger than obtained for a continuous culture operated with no cell recycle and the same specific growth rate.