Two strains (TERI-6(T) and TERI-7) of a novel yeast species were isolated from acidic tar sludge-contaminated soil samples collected from Digboi Refinery, Assam, India. These two yeast strains were morphologically, physiologically and phylogenetically identical to each other. No sexual reproduction was observed on corn meal, malt, Gorodkowa, YM or V8 agars. Physiologically, the novel isolates were most closely related to Candida blankii, but differed in eight physiological tests. The prominent differences were the ability of the isolates to assimilate melibiose and inulin and their inability to assimilate d-glucuronate, succinate and citrate. Phylogenetic analysis using the D1/D2 variable domain showed that the closest relative of these strains is C. blankii (2.8 % divergence). Other related species are Zygoascus hellenicus and Candida bituminiphila. The isolates differed from C. blankii by 11 base substitutions in the 18S rRNA gene sequence and by 58 base substitutions in the internal transcribed spacer sequences. The physiological, biochemical and molecular data support the contention that strains TERI-6(T) and TERI-7 represent a novel species, for which the name Candida digboiensis sp. nov. is proposed. The type strain is TERI-6(T) (=MTCC 4371(T)=CBS 9800(T)=JCM 12300(T)).