Basic Violet 3 (BV) belongs to the most important group of synthetic colorants and is used extensively in textile industries. It is considered as xenobiotic compound which is recalcitrant to biodegradation. As Candida krusei could not use BV as sole carbon source, experiments were conducted to study the effect of cosubstrates on decolorization of BV in semi synthetic medium using glucose, sucrose, lactose, maltose, yeast extract, peptone, urea and ammonium sulphate. Maximum decolorization (74%) was observed in media supplemented with sucrose. Use of sugarcane bagasse extract as sole nutrient source showed 100% decolorization of BV within 24 h under optimized condition. UV-visible, FTIR spectral analysis and HPLC analysis confirmed the biodegradation of BV. Six degradation products were isolated and identified. We propose the biodegradation pathway for BV which occurs via stepwise reduction and demethylation process to yield mono-, di-, tri-, tetra-, penta- and hexa-demethylated BV species which was degraded completely. The study of the enzymes responsible for decolorization showed the activities of lignin peroxidase, lacasse, tyrosinase, NADH-DCIP reductase, MG reductase and azoreductase in cells before and after decolorization. A significant increase in activities of NADH-DCIP reductase and laccase was observed in the cells after decolorization. The yeast C. krusei could show the ability to decolorize the textile dye BV using inexpensive source like sugarcane bagasse extract for decolorization.