Lyocell is a type of regenerated cellulose. Fibres spun from cellulose solution in N-methylmorpholine-N-oxide hydrate consist of crystalline cellulose II and amorphous cellulose. Lyocell fabrics were treated with aqueous sodium hydroxide solution (NaOH) to study the influence of alkali on optical and structural properties. It was observed that sodium hydroxide treatment causes the density, orientation and crystallinity of lyocell fibre to decrease with increasing sodium hydroxide concentration, a corresponding decrease in tensile strength is also observed. The greatest change in fibre properties occurs between 3.0 and 5.0 mol dm−3 NaOH. This is attributed to the onset of formation of Na–cellulose II at 3.0 mol dm−3 NaOH; a fully formed Na–cellulose II structure is expected above 6.8 mol dm−3 NaOH. Formation of Na–cellulose II causes plasticization of the lyocell fibres as both inter- and intra-molecular hydrogen bonds are broken by these higher sodium hydroxide concentrations.