The main objective of this study was to investigate the utilization of various agro-industrial wastes such as wheat bran, wheat husk, wheat straw, peanut powder, pomace, corn cobs, rice straw, sawdust and sugarcane bagasse for the cost-effective production of xylanase by Bacillus safensis XPS7 using the one-variable-at-a-time approach. A number of bacterial strains were isolated from different locations in the cold desert region of Himachal Pradesh, India. Among these, the hyperproducing strain designated as XPS7 was selected for optimized production of xylanase and identified as B. safensis based on 16S rDNA gene analysis. B. safensis XPS7 produced the maximum xylanase (141.28 U/mL) at 45 °C, pH 9, 24 h incubation time, 2% (w/v) wheat straw and wheat bran mixture as carbon source and 1.5% (w/v) ammonium nitrate as the nitrogen source in modified Riviere’s medium. The results showed that the combination of wheat straw and wheat bran proved to be a cheap and abundant source for the hyper production of xylanase and can be used as an inexpensive base (carbon source) for large scale industrial production of enzymes. In addition, the use of waste for the economic production of enzymes will also help to minimize the environmental problems associated with the disposal of agro-industrial waste.