Rice straw is an important low-cost feedstock for bio-based economy. This report presents a study in which rice straw was used both as a source for isolation of bacteria producing the biodegradable polyester polyhydroxyalkanoate (PHA), as well as the carbon source for the production of the polymer by the isolated bacteria. Of the 100 bacterial isolates, seven were found to be positive for PHA production by Nile blue staining and were identified as Bacillus species by 16S rRNA gene sequence analysis. Three isolates showed 100% sequence identity to B. cereus, one to B. paranthracis, two with 99 and 100% identity to B. anthracis, while one was closely similar to B. thuringiensis. For use in PHA production, rice straw was subjected to mild alkaline pretreatment followed by enzymatic hydrolysis. Comparison of pretreatment by 2% sodium hydroxide, 2% calcium hydroxide and 20% aqueous ammonia, respectively, at different temperatures showed maximum weight loss with NaOH at 80 °C for 5 h, but ammonia for 15 h at 80 °C led to highest lignin removal of 63%. The ammonia-pretreated rice straw also led to highest release of total reducing sugar up to 92% on hydrolysis by a cocktail of cellulases and hemicellulases at 50 °C. Cultivation of the Bacillus isolates on the pretreated rice straw revealed highest PHA content of 59.3 and 46.4%, and PHA concentration of 2.96 and 2.51 g/L by Bacillus cereus VK92 and VK98, respectively.