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Groundnut shell which is rich in natural cellulose was assessed as a substrate for production of cellulase enzyme by cellulolytic bacteria. In the present investigation the bacterial isolate Bacillus subtilis M1 was found to be capable of producing high amount of endoglucanase and exoglucanase on alkali treated groundnut shell. The effect of some nitrogen sources, amino acids and Ca++ ionsin the medium containing pretreated groundnut shell were also evaluated. It was observed that 2% substrate concentration, 1mM calcium concentration were optimum for cellulase production. Ammonium nitrate was found to be the best among nitrogen sources tested. Asparagine, tryptophan and methionine were found to be stimulatory for cellulase activity. Keywords: Bacillus subtilis, cellulase, endoglucanase, exoglucanase, groundnut shell