In our effort to improve the efficiency and yield of xylose-to-ethanol bioconversion in Pichia stipitis, the transaldolase (TAL) in the pentose phosphate pathway was identified as a rate-limiting enzyme for improvement. A mutant containing the Q263R change was first obtained by directed evolution with 5-fold increase of activity, which was then incorporated into P. stipitesvia the pYDS vector to produce a genetically stable strain for fermentation on xylose. In comparison with the parental strain, TAL-Q263R(+) increases ethanol prodcution by 36% and 100% as measured by volumetric production rate and specific production rate, respectively. Thus improving the transaldolase activity in P. stipitis can significantly increase the rate and yield of xylose conversion to ethanol.