Nowadays, there is a great demand to the innovation and development of new generation of fibers that are used in the textile industry. Spinning of lyocell fibers is considered as one the new developments in this case. These fibers are of high tenacity and moisture absorbency. Lyocell fibers are used in blend with other fibers specially cotton fibers. In this research aims at studying the behavior of lyocell fibers and the damage those fibers are experiencing during the various stages of spinning process. After preparation of fibers, two types of yarns with the linear density of 25 Ne were manufactured in ring and rotor spinning machines. These yarns were put in the plain knitted structure consequently. Some of mechanical and physical properties of produced yarns are assessed namely, tenacity, breaking elongation, evenness and hairiness. The possible damage due to processing were studied by collecting the fibers in the various stages of spinning i.e. blowing, carding and spinning by SEM. Studies are carried out on the test fabrics and as well as fabric abrasion, tenacity, breaking elongation and protruding fibers on the surface. In all of the study stages, fibrillation behaviors of the lyocell fibers were under focus. SEM observations revealed that the lyocell fibers have experienced mechanical fiber damage in various forms such as, axial splits, compressive deformation, rippling damage and fibrillation. To examine the interstructural change, FTIR tests were carried out which showed that there is not any structural changes on the damaged fibers due to processing. Tenacity of ring yarns was higher in comparison with rotor yarns. Hairiness of rotor yarns was higher in comparison with ring yarns. Abrasion tests showed that lyocell fibers have the tendency to liberate their fibrillated parts after pilling which is considered as one the distinguished characteristics of these fibers.