Bio-alcohols are produced from biomass by fermentation, and distillation is commonly used to separate the alcohol from the aqueous phase. This is, however, a high energy consumption process, and alternative approaches to this separation are being pursued. In this work, the use of phosphonium-based ionic liquids (ILs) for the extraction of ethanol from fermentation broths is investigated. Ternary phase diagrams, necessary for the design and to implement an alternative liquid–liquid extraction process for the alcohol recovery, were determined for seven ionic liquids. The modelling of the equilibrium data was performed using the COSMO-RS and NRTL models; the first aiming at screening other ionic liquids not experimentally studied, and the latter aiming at designing a separation process. The gathered data indicate that phosphonium-based ionic liquids are the best yet reported to perform water–ethanol separations. Based on the most promising phase diagrams, an analysis of the alcohol and ionic liquid recovery steps was carried out and a liquid–liquid extraction stage coupled to an extractive fermentation, where the ionic liquid is continuously recycled to the fermentator and the ethanol concentration is carried out by pervaporation, is here proposed as an alternative to distillation.