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Pulp and paper industry use different chemicals to separate cellulose fibre from lignocellulosic biomass for papermaking. The use of sodium sulphide and chlorine during pulping and bleaching processes, have now been classified as the main sources of air and water pollution in the pulp and paper industry. To surmount these problems biological processing, offers potential opportunities for changing the industry towards more environment friendly industry. In the biological pulping process, removal of lignin can be achieved through treatment of lignocellulosic materials with white rot fungi due to their ability to degrade complex and recalcitrant organic molecules and this makes them attractive micro-organism for biodelignification. In the present study biological pre-treatment of Eucalyptus chips was carried out with Schizophyllum commune. The influence of growth parameters like incubation periods, moisture levels, media, media concentration, pH and temperature were also optimized. During the study it was found that Schizophyllum commune shows 14.72% lignin loss within 28 days at optimum conditions i.e. pH (6.0), temperature (25°C), moisture (60%) and molasses concentration (4%). Thus the study will provide an insight to find out economically feasible conditions to commercialize biopulping on large scale. [ABSTRACT FROM AUTHOR]