Xylooligosaccharides (XOs) were produced from four indigenous agricultural by-products including corncob, rice husk, almond shells and sheesham wood (Dalbergia sissoo) dust through chemical and enzymatic hydrolyses to evaluate potential of local agricultural wastes for XOs production. The methodology comprised of preparation of xylanase enzyme using Trichoderma harzianum with optimum reaction conditions found at pH 5.5 and temperature 28°C. When compared with commercially available enzyme, no significant difference was observed in xylan hydrolysis. Two types of chemical pre-treatment with acid and alkali were performed to enhance enzymatic hydrolysis. The pre-treatment with alkali improved the process in terms of lower yield of by-products. Resultant slurries were subjected to steaming at 145 ̊C for 30 min and the substrates were pulverized to facilitate enzymatic hydrolysis with xylanase (5 U/g) at 50 ̊C, pH 5.5. After refining, the XOs solution was spray dried. Both crude and refined XOs were determined with HPLC. Highest yield of the XOs was obtained from corncobs followed by sheesham wood dust, almond shells and rice husk. Asserted health effects of the XOs intake were evaluated through biological studies. XOs supplemented diet improved the body weight gain and serum biochemical profile of normal and diabetic rats. Also gastrointestinal health got better after 3 weeks study period indicated by low fecal pH, augmented CFU of Bifidobacteria. The XOs were incorporated in yoghurt by replacing CHO at different ratios for preparation of synbiotic food product. The pH, titratable acidity, total solids, fat, viscosity and whey separation with sensory characteristics of yoghurt samples were determined at 0, 7, 14 days interval. No significant difference (P<0.05) in sensory characteristics was observed with XOs incorporation up to 2.5% level; however physicochemical properties were affected