Mixing and oxygen transfer are serious problems in the microbial production of xanthan gum due the highly viscous cultivation broths. Addition of vegetable oils to the medium is one of the strategies for overcoming these problems. Palm-oil was chosen, because it is abundantly available in Malaysia. It was found that the viscosity of a 7g/L xanthan solution could be brought down from 719.85cP to 225.5cP, as the oil fraction (v/v) was increased from 0.05 to 0.5. Bioreactor runs were carried out using two types of impellers, Rushton and InterMIG. The fraction of oil (v/v) used in the growth medium was varied from 0.05 to 0.50. In the bioreactor with InterMIG impeller, the xanthan concentration increased from 17.39g/L in the fermentation without oil to 38.50g/L in the fermentation with 0.50 v/v oil, whereas in the bioreactor with Rushton impeller, the maximum xanthan concentration was found to be 28.24g/L in the fermentation with 0.25v/v of oil. In order to detect the utilization of palm-oil as a secondary carbon source by the cells, lipase activities and glucose consumption rates were determined at the end of all the batches. The optimum oil fraction, at which lipase activities were maximum (0.38 and 0.24 U/mL) and glucose consumption rates were minimum (0.23g/L/h and 0.15g/L/h) for the runs with Rushton and InterMIG impellers respectively, was found to be the same i.e. 0.35v/v. This shows that palm oil is useful as a secondary carbon source, besides reducing the broth viscosity and enhancing xanthan production.