Abstract: An improved and highly productive method of continuously producing ethanol from lignocellulosic substrates is provided. The method involves providing a suitable microbial system within a reaction vessel and adding fermentable substrate to the reactor to form a reaction mixture. The fermentation reaction is allowed to proceed while a quiescent state is maintained within the reactor. During the fermentation, soluble substrate is differentially retained relative to the feed slurry and reaction biocatalysts are retained and internally recycled within the system. Further, while fermenting substrate is retained within the system, it forms a stratified zone within the reactor such that the concentration of actively fermenting substrate is highest at upper portions of the reaction zone and is lowest, near zero, at a lower portion of the reaction zone. Insoluble, fully reacted substrate may be withdrawn from a region near the bottom of the reactor.