Context The demand and production of renewable fuels are boosting the production of biofuels. Agricultural industries have been playing a role in the increase of ethanol production from corn and, consequently, their by-products. Dried distiller’s grain (DDG) is a by-product of corn ethanol and can be used as a source of protein and energy in the diet of feedlot lambs. Aims The objectives of this experiment were to evaluate the effects of including DDG in high-concentrate diets on performance, rumen morpho-histology, and carcass characteristics in feedlot lambs. Methods Forty-five Santa Inês × Dorper male lambs with an initial body weight of 21 ± 3.2 kg (mean ± s.d.) and 82 ± 12 days old (mean ± s.d.) were distributed in a randomised complete-block design (nine blocks and five treatments). The experimental diets contained 900 g/kg of concentrate and 100 g/kg of coastcross hay, and DDG was used in replacement of soybean meal and corn. Lambs were fed one of the following five diets for 112 days: control without DDG (0DDG), or diet with 150 (150DDG), 300 (300DDG), 450 (450DDG) and 600 (600DDG) g/kg DM of DDG. Key results The inclusion of DDG from 150 up to 600 g/kg DM in the diet of the lambs linearly decreased (P < 0.01) dry-matter intake (DMI), net energy of maintenance intake, net energy of gain, average daily gain, final body weight and feed efficiency (P < 0.01). The inclusion of DDG linearly decreased (P ≤ 0.04) hot carcass weight, cold carcass weight, hot carcass yield and cold carcass yield. For ruminal morpho-histology, there was a linear decrease in the area of papillae and absorptive surface area (P < 0.01) Conclusions An increase in the DDG level from 150 to 600 g/kg DM in the diet of lambs negatively affected feedlot performance, with detrimental effects on carcass traits and the development of rumen papillae. The lambs showed low acceptance of DDG, even at the lowest level of dietary inclusion (150g/kg DM) as DMI was impaired. Implications DDG should be used with caution in diets for finishing lambs. Dietary inclusion of DDG up to 150 g/kg DM is recommended. Higher inclusions levels may significantly affect performance and carcass weight and yield.