A method of cutting a wood block for production of veneer by a rotary veneer lathe. The veneer lathe includes a veneer knife, a number of rotatable peripheral drive wheels placed parallel to the veneer knife and each having a number of tooth-like projections pierceable into a wood block for driving the wood block for rotation about its axis, and a guide member for guiding veneer peeled from the wood block. The cutting of the wood block is done at a first position of the peripheral drive wheels where the veneer peeled from the wood block is pierced by the projections to such an extent that substantial splits are formed in the veneer along wood grain thereof, and also at a second position where the projections provide no force to the veneer moving past the guide member that causes the substantial splits in the veneer.