A process and system for producing sterilized shredded material such as mulch or compost introduces a sterilant during a grinder stage for forming the shredded material, wherein the sterilant is presented by introduction with water via a spray bar at the grinder stage. The grinder stage may have a preliminary first (initial) grinder stage. The process may include shearing wood parts to a uniform size prior to the first grinder stage. The resulting shredded material can be irradiated or subjected to external heat. Testing of the resulting output shredded material can be conducted to determine the presence of mold spores, or the like and, if found, for redirecting the shredded material to the grinder stage associated with the sterilant.