Lactose, an inexpensive, soluble substrate, offers reasonably good induction for cellulase production by Trichoderma reesei. The fungus does not uptake lactose directly. Lactose is hydrolyzed to extracellular glucose and galactose for subsequent ingestion. The roles of this extracellular hydrolysis step were investigated in this study. Batch and continuous cultures were grown on the following substrates: lactose, lactose–glycerol mixtures, glucose, galactose, and glucose–galactose mixtures. Cell growth, substrate consumption, lactose hydrolysis, and lactase and cellulase production were followed and modeled. Cells grew much faster on glucose than on galactose, but with comparable cell yields. Glucose (at >0.3g/L) repressed the galactose consumption. Cellulase synthesis was growth-independent while lactase synthesis was growth-dependent, except at D0.1h−1), lactase synthesis became repressed. The insufficient lactase synthesis limited the lactose hydrolysis rate. Extracellular lactose hydrolysis was concluded to be the rate-limiting step for growth of T. reesei Rut C30 on lactose.