This invention is directed to a staged process for producing liquids from coal or similar carbonaceous feeds combining a pretreatment stage and a liquefaction stage. In the process, the feed is reacted with carbon monoxide and water at an elevated temperature and pressure. The so pretreated coal is sent to a liquefaction reactor, wherein the coal is reacted at a somewhat higher temperature in the presence of hydrogen and catalyst to produce valuable liquid fuels or feedstocks.