Paenibacillus sp. W-61 is capable of utilizing water-insoluble xylan for carbon and energy sources and has three xylanase genes, xyn1, xyn3, and xyn5. Xyn1, Xyn3, and Xyn5 are extracellular enzymes of the glycoside hydrolase (GH) families 11, 30, and 10, respectively. Xyn5 contains several domains including those of carbohydrate-binding modules (CBMs) similar to a surface-layer homologous (SLH) protein. This study focused on the role of Xyn5, localized on the cell surface, in water-insoluble xylan utilization. Electron microscopy using immunogold staining revealed Xyn5 clusters over the entire cell surface. Xyn5 was bound to cell wall fractions through its SLH domain. A Δxyn5 mutant grew poorly and produced minimal amounts of Xyn1 and Xyn3 on water-insoluble xylan. A Xyn5 mutant lacking the SLH domain (Xyn5ΔSLH) grew poorly, secreting Xyn5ΔSLH into the medium and producing minimal Xyn1 and Xyn3 on water-insoluble xylan. A mutant with an intact xyn5 produced Xyn5 on the cell surface, grew normally, and actively synthesized Xyn1 and Xyn3 on water-insoluble xylan. Quantitative reverse transcription-PCR showed that xylobiose, generated from water-insoluble xylan decomposition by Xyn5, is the most active inducer for xyn1 and xyn3. Luciferase assays using a Xyn5-luciferase fusion protein suggested that xylotriose is the best inducer for xyn5. The cell surface Xyn5 appears to play two essential roles in water-insoluble xylan utilization: (i) generation of the xylo-oligosaccharide inducers of all the xyn genes from water-insoluble xylan and (ii) attachment of the cells to the substrate so that the generated inducers can be immediately taken up by cells to activate expression of the xyn system.