Several fungal endophytes of the Egyptian marine sponge Latrunculia corticata were isolated, including strains Trichoderma sp. Merv6, Penicillium sp. Merv2 and Aspergillus sp. Merv70. These fungi exhibited high cellulase activity using different lignocellulosic substrates in solid state fermentations (SSF). By applying mutagenesis and intergeneric protoplast fusion, we have obtained a recombinant strain (Tahrir-25) that overproduced cellulases (exo-β-1,4-glucanase, endo-β-1,4-glucanase and β-1,4-glucosidase) that facilitated complete cellulolysis of agricultural residues. The process parameters for cellulase production by strain Tahrir-25 were optimized in SSF. The highest cellulase recovery from fermentation slurries was achieved with 0.2% Tween 80 as leaching agent. Enzyme production was optimized under the following conditions: initial moisture content of 60% (v/w), inoculum size of 10(6) spores ml(-1), average substrate particle size of 1.0 mm, mixture of sugarcane bagasse and corncob (2:1) as the carbon source supplemented with carboxymethyl cellulose (CMC) and corn steep solids, fermentation time of 7 days, medium pH of 5.5 at 30°C. These optimized conditions yielded 450, 191, and 225 units/gram dry substrate (U gds(-1)) of carboxylmethyl cellulase, filter-paperase (FPase), and β-glucosidase, respectively. Subsequent fermentation by the yeast, Saccharomyces cerevisiae NRC2, using lignocellulose hydrolysates obtained from the optimized cellulase process produced the highest amount of ethanol (58 g l(-1)). This study has revealed the potential of exploiting marine fungi for cost-effective production of cellulases for second generation bioethanol processes.