Ethanol is produced by reacting methanol with hydrogen and carbon monoxide at elevated temperature and pressure in the presence of a catalyst comprising cobalt, and iodide or a bromide and a compound having X(A)(B)(C) in which formula X is a nitrogen or phosphorus and A, B and C are individually monovalent organic radicals, or X is phosphorus and any two of A,B and C together form an organic divalent cyclic ring system bonded to the X atom, or X is nitrogen and all of A,B and C form an organic trivalent cyclic ring system bonded to the X atom, and in the additional presence of an added inert liquid which is characterized as a compound capable of forming, under normal conditions of temperature and pressure, a separate phase in the presence of methanol containing up to 20% w/w water, which compound contains in its structure bonds other than carbon/carbon and carbon/hydrogen. Typical of the inert liquids which may be employed are chlorobenzene, decanoic acid, polydimethylsiloxane fluid and methyl phenyl silicone fluid. The addition of the inert liquid suppresses side-reactions and thereby increases the total yield and selectivity to ethanol.