Lignocellulosic biomass (LCB) is globally available and sustainable feedstock containing sugar-rich platform that can be converted to biofuels and specialty products through appropriate processing. This review focuses on the efforts required for the development of sustainable and economically viable lignocellulosic biorefinery to produce carbon neutral biofuels along with the specialty chemicals. Sustainable biomass processing is a global challenge that requires the fulfillment of fundamental demands concerning economic efficiency, environmental compatibility, and social responsibility. The key technical challenges in continuous biomass supply and the biological routes for its saccharification with high yields of sugar sources have not been addressed in research programs dealing with biomass processing. Though many R&D endeavors have directed towards biomass valorization over several decades, the integrated production of biofuels and chemicals still needs optimization from both technical and economical perspectives. None of the current pretreatment methods has advantages over others since their outcomes depend on the type of feedstock, downstream process configuration, and many other factors. Consolidated bio-processing (CBP) involves the use of single or consortium of microbes to deconstruct biomass without pretreatment. The use of new genetic engineering tools for natively cellulolytic microbes would make the CBP process low cost and ecologically friendly. Issues arising with chemical characteristics and rigidity of the biomass structure can be a setback for its viability for biofuel conversion. Integration of functional genomics and system biology with synthetic biology and metabolic engineering undoubtedly led to generation of efficient microbial systems, albeit with limited commercial potential. These efficient microbial systems with new metabolic routes can be exploited for production of commodity chemicals from all the three components of biomass. This paper provides an overview of the challenges that are faced by the processes converting LCB to commodity chemicals with special reference to biofuels.