Pretreatment of lignocellulose biomass for biofuel production generates inhibitory compounds that interfere with microbial growth and subsequent fermentation. Remediation of the inhibitors by current physical, chemical, and biological abatement means is economically impractical, and overcoming the inhibitory effects of lignocellulose hydrolysate poses a significant technical challenge for lower-cost cellulosic ethanol production. Development of tolerant ethanologenic yeast strains has demonstrated the potential of in situ detoxification for numerous aldehyde inhibitors derived from lignocellulose biomass pretreatment and conversion. In the last decade, significant progress has been made in understanding mechanisms of yeast tolerance for tolerant strain development. Enriched genetic backgrounds, enhanced expression, interplays, and global integration of many key genes enable yeast tolerance. Reprogrammed pathways support yeast functions to withstand the inhibitor stress, detoxify the toxic compounds, maintain energy and redox balance, and complete active metabolism for ethanol fermentation. Complex gene interactions and regulatory networks as well as co-regulation are well recognized as involved in yeast adaptation and tolerance. This review presents our current knowledge on mechanisms of the inhibitor detoxification based on molecular studies and genomic-based approaches. Our improved understanding of yeast tolerance and in situ detoxification provide insight into phenotype-genotype relationships, dissection of tolerance mechanisms, and strategies for more tolerant strain development for biofuels applications.