The use of plant biomass for biofuel production will require efficient utilization of the sugars in lignocellulose, primarily glucose and xylose. However, strains of Saccharomyces cerevisiae presently used in bioethanol production ferment glucose but not xylose. Yeasts engineered to ferment xylose do so slowly, and cannot utilize xylose until glucose is completely consumed. To overcome these bottlenecks, we engineered yeasts to coferment mixtures of xylose and cellobiose. In these yeast strains, hydrolysis of cellobiose takes place inside yeast cells through the action of an intracellular β-glucosidase following import by a high-affinity cellodextrin transporter. Intracellular hydrolysis of cellobiose minimizes glucose repression of xylose fermentation allowing coconsumption of cellobiose and xylose. The resulting yeast strains, cofermented cellobiose and xylose simultaneously and exhibited improved ethanol yield when compared to fermentation with either cellobiose or xylose as sole carbon sources. We also observed improved yields and productivities from cofermentation experiments performed with simulated cellulosic hydrolyzates, suggesting this is a promising cofermentation strategy for cellulosic biofuel production. The successful integration of cellobiose and xylose fermentation pathways in yeast is a critical step towards enabling economic biofuel production.