Abstract Background Saccharification of lignocellulosic material by xylanases and other glycoside hydrolases is generally conducted at high concentrations of the final reaction products, which frequently inhibit the enzymes used in the saccharification process. Using a random nonhomologous recombination strategy, we have fused the GH11 xylanase from Bacillus subtilis (XynA) with the xylose binding protein from Escherichia coli (XBP) to produce an enzyme that is allosterically stimulated by xylose. Results The pT7T3GFP_XBP plasmid containing the XBP coding sequence was randomly linearized with DNase I, and ligated with the XynA coding sequence to create a random XynA–XBP insertion library, which was used to transform E. coli strain JW3538-1 lacking the XBP gene. Screening for active XBP was based on the expression of GFP from the pT7T3GFP_XBP plasmid under the control of a xylose inducible promoter. In the presence of xylose, cells harboring a functional XBP domain in the fusion protein (XBP+) showed increased GFP fluorescence and were selected using FACS. The XBP+ cells were further screened for xylanase activity by halo formation around xylanase producing colonies (XynA+) on LB-agar-xylan media after staining with Congo red. The xylanase activity ratio with xylose/without xylose in supernatants from the XBP+/XynA+ clones was measured against remazol brilliant blue xylan. A clone showing an activity ratio higher than 1.3 was selected where the XynA was inserted after the asparagine 271 in the XBP, and this chimera was denominated as XynA–XBP271. The XynA–XBP271 was more stable than XynA at 55 °C, and in the presence of xylose the catalytic efficiency was ~3-fold greater than the parental xylanase. Molecular dynamics simulations predicted the formation of an extended protein–protein interface with coupled movements between the XynA and XBP domains. In the XynA–XBP271 with xylose bound to the XBP domain, the mobility of a β-loop in the XynA domain results in an increased access to the active site, and may explain the observed allosteric activation. Conclusions The approach presented here provides an important advance for the engineering enzymes that are stimulated by the final product.