Abstract: Rhodotorula kratochvilovae has shown to be a promising species for microbial oil production from lignin-derived compounds. Yet, information on R. kratochvilovae’s detoxification and microbial oil production is scarce. This study investigated the growth and microbial oil production on the phenolic-containing effluent from poplar steam explosion and its detoxification with five R. kratochvilovae strains (EXF11626, EXF9590, EXF7516, EXF3697, EXF3471) and compared them with Cutaneotrichosporon oleaginosum. The R. kratochvilovae strains reached a maximum growth rate up to four times higher than C. oleaginosum. Furthermore, all R. kratochvilovae strains generally degraded phenolics more rapidly and to a larger extent than C. oleaginosum. However, the diluted substrate limited the lipid production by all strains as the maximum lipid content and titre were 10.5% CDW and 0.40 g/L, respectively. Therefore, future work should focus on increasing lipid production by using advanced fermentation strategies and stimulating the enzyme excretion by the yeasts for complex substrate breakdown.