To secure a sustainable energy source for the future, we need to develop an alternative to fossil fuels. Cellulose-based biofuel production has great potential for development into a sustainable and renewable energy source. The thick secondary walls of xylem cells provide a natural source of cellulose. As a result of the extensive production of wood through cambial activity, massive amounts of xylem cells can be harvested from trees. How can we obtain a maximal cellulose biomass yield from these trees? Thus far, tree breeding has been very challenging because of the long generation time. Currently, new breeding possibilities are emerging through the development of high-throughput technologies in molecular genetics. What potential does our current knowledge on the regulation of cambial activity provide for the domestication of optimal bioenergy trees? We examine the hormonal and molecular regulation of wood development with the aim of identifying the key regulatory aspects. We describe traits, including stem morphology and xylem cell dimensions, that could be modified to enhance wood production. Finally, we discuss the potential of novel marker-assisted tree breeding technologies.