Hydrothermal pretreatment using liquid hot water, steam explosion, or dilute acids enhances the enzymatic digestibility of cellulose by altering the chemical and/or physical structures of lignocellulosic biomass. However, compounds that inhibit both enzymes and microbial activity, including lignin-derived phenolics, soluble sugars, furan aldehydes, and weak acids, are also generated during pretreatment. Insoluble lignin, which predominantly remains within the pretreated solids, also acts as a significant inhibitor of cellulases during hydrolysis of cellulose. Exposed lignin, which is modified to be more recalcitrant to enzymes during pretreatment, adsorbs cellulase nonproductively and reduces the availability of active cellulase for hydrolysis of cellulose. Similarly, lignin-derived phenolics inhibit or deactivate cellulase and β-glucosidase via irreversible binding or precipitation. Meanwhile, the performance of fermenting microorganisms is negatively affected by phenolics, sugar degradation products, and weak acids. This review describes the current knowledge regarding the contributions of inhibitors present in whole pretreatment slurries to the enzymatic hydrolysis of cellulose and fermentation. Furthermore, we discuss various biological strategies to mitigate the effects of these inhibitors on enzymatic and microbial activity to improve the lignocellulose-to-biofuel process robustness. While the inhibitory effect of lignin on enzymes can be relieved through the use of lignin blockers and by genetically engineering the structure of lignin or of cellulase itself, soluble inhibitors, including phenolics, furan aldehydes, and weak acids, can be detoxified by microorganisms or laccase.