Potato washing residue stream produced during Chips manufacturing was used as an economical source for biomass production of Saccharomyces cerevisiae as well as bioethanol production.  Results demonstrated that 1% H₂SO₄ at 100 ºC for 1 h was enough to hydrolyze all starch contained in the residue stream. Two strains of Saccharomyces cerevisiae (y-1646 and commercial one) were able to utilize and ferment the acid treated residue stream under both aerobic and semianerobic conditions. The maximum yield of ethanol (5.52 gl^-1) was achieved at 35 ºC by Saccharomyces cerevisiae y-1646 after 36 h after addition of ZnCl₂ (0.4 gl^-1). Five secondary by-products were found to be associated the ethanol production process. The most important compound was Chlorozotocin that was shown to possess medicinal and pharmaceutical advantages in cancer chemotherapy. Study recommends intensive investigation in this research point to enhance the production of that extremely important compound.