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Xanthan gum is a polysaccharide has been widely used in the pharmaceutical industry. Production of xanthan gum by a bacterium Xanthomonas compestris NCIM2961 was investigated from potato waste as a source of carbon. Production yield was improved by pretreatment of the potato residue with NaOH and HCl. The medium components considered are potato waste, yeast extract, peptone, FeCl3, K2HPO4, MgSO4.7H2O, (NH4)2SO4, Citric acid, H3PO3, CaCO3, ZnCl2, NH4NO3. The optimum production of 45g/l was found at 28 ˚C when bacterium culture was incubated for 96 hours. From these findings it has been concluded that potato waste can be a promising substrate for xanthan gum production.