This study was conducted at the ethanol plant of Metehara sugar factory, at a laboratory scale, to assess the effect of recycling vinasse into the fermentation process on effluent reduction. Vinasse is an effluent produced from distilleries. The experimental design included vinasse concentrations at 4 dilution rates (0 (control), 20, 35, 50, and 65% of process water) with 2 replicates and 6 responses, as follows: ethanol yield, fermentation efficiency, residual sugar concentration, cell count, cell viability, and calcium oxide content. In this study, the actual operational parameters of the ethanol plant were maintained during the experiment. The result of the experiment indicates that, with up to 20% vinasse recycling, there was no influential impact on the ethanol yield, the fermentation efficiency, the residual sugar concentration, or the calcium oxide content, attributable to the recycling, as compared to the control. Above 20% vinasse recycling, ethanol yield and fermentation efficiency decreased sharply from those of the control. In addition, with 20% vinasse recycling put into practice, the amount of vinasse generated will be reduced by about 19.5% and about 114.2 tons of water will be saved per day. Moreover, the excess amount of vinasse produced by the distillery, which is beyond the handling capacity of bio-compost plant of the distillery, will reduce from 105 to 36.8 tons per day. Therefore, it is possible to recycle vinasse into the fermenter up to 20% on dilution water of Metehara distillery, without causing any impacts on the distillery’s performance.