A new oddative degradation method was developed for separating hemicellulose, cellulose, and lignin from an oil palm shell waste, and for converting them into valuable chemicals. The method is basically a two-step process in which the shell pretreated in hot water at 180 degreesC was oxidized with 30%-H2O2 at 60 degreesC (first-stage oxidation) under ambient pressure with or without an Fe catalyst. To increase the product yield and selectivity, a second-stage oxidation of the water-soluble components obtained from the first-stage oxidation was also performed in the presence of the Fenton reagent at 25 degreesC. Through the hot water treatment, hemicellulose in the palm oil shell was successfully recovered as saccharides, leaving lignin and cellulose. Through the first-stage oxidation without the Fe catalyst lignin was converted to water-soluble compounds containing small molecular weight fatty acids such as HCOOH and CH3COOH, and almost pure cellulose was recovered in 22% of yield on carbon basis. After the second-stage oxidation, the yield of small molecular weight fatty acids reached 30 wt % on the oil palm shell basis. The proposed method was expected to be a new route for converting low grade resources into valuable chemicals.