The demand for natural sweetener xylitol, a low glycemic index sugar alcohol, is growing. This chapter investigates sustainable bio-based xylitol production from hemicellulose fraction of lignocellulosic biomass, through a biorefinery approach, highlighting the significance of resource utilization and waste reduction for a circular economy while examining strategies for efficiently extracting xylose from biomass and converting it into xylitol. Lignocellulosic biomass, a valuable source for bio-based products, composed of cellulose, hemicellulose, and lignin, is examined, focusing on hemicellulose as a key substrate for xylitol production. Various pretreatments to extract xylose, impact of inhibitors generated during pretreatment on fermentation, mitigation strategies, and factors influencing xylitol production from xylose-rich hydrolysates are discussed. Recent advancements in overcoming challenges are highlighted. Furthermore, coproduction of ethanol with xylitol, to enhance economic viability of the biorefinery is discussed as a promising approach. Also efficient, robust yeast strains for valuable products’ coproduction are spotlighted.