The aim of this study was to isolate cellulose nanofibers by ultrafine grinding, from sludge (residue from dissolving cellulose production) and cellulose (dissolving cellulose) and to characterize their properties. The mechanical fibrillation was found to be more energy efficient at low rotor speed (1440) and was estimated to be 1.7 and 1.3 kWh/kg for cellulose (CF) and sludge fibers (SF), respectively. Sludge (SNF) and cellulose (CNF) nanofibers had diameter less than 100 nm, as measured from transmission electron microscopy images. The specific surface area ranged from approximately 84 to 112 m2/g for CNF and SNF respectively. The apparent networks density increased with fibrillation, being approximately 330 and 370 for CF and SF while 907 and 986 kg/m3 for the corresponding nanosized ones. The scanning electron microscopy (SEM) study exhibited considerably smoother surfaces for the nanofiber networks compared to microsized. Fibrillation to nanosized fibers had positive impact on modulus and strength of both raw materials and the improvement was more significant for sludge, indicating more efficient fibrillation. The study showed that the isolation of nanofibers from sludge could be considered an economic, energy efficient and viable alternative to generate value-added product from cellulose sludge while minimizing the sludge disposal issues.