The aim of the present work was to improve stability of d-psicose 3-epimerase and biotransformation of fruit and vegetable residues for d-psicose production. The study established that N-terminal fusion of a yeast homolog of SUMO protein – Smt3 – can confer elevated optimal temperature and improved operational stability to d-psicose 3-epimerase. The Smt3-d-psicose 3-epimerase conjugate system exhibited relatively better catalytic efficiency, and improved productivity in terms of space–time yields of about 8.5 kg L−1 day−1. It could serve as a promising catalytic tool for the pilot scale production of the functional sugar, d-psicose. Furthermore, a novel approach for economical production of d-psicose was developed by enzymatic and microbial bioprocessing of fruit and vegetable residues, aimed at epimerization of in situd-fructose to d-psicose. The bioprocessing led to achievement of d-psicose production to the extent of 25–35% conversion (w/w) of d-fructose contained in the sample.