Alcohol oxidase-catalyzed oxidation of benzyl alcohol to benzaldehyde was studied in three two-liquid phase systems involving butyl acetate, xylene and n-decane. A more highly hydrophobic solvent resulted in more favorable partitioning of the substrate into the aqueous phase and less deleterious effect on the enzyme activity. As a result, the overall production of aldehyde was highest with the n-decane system and lowest with the butyl acetate system. In addition, the organic solvent served as an extractant for the product, which acted both as a competitive inhibitor and as a denaturant of the enzyme. The time courses of benzaldehyde production were simulated by a simple mathematical model assuming Michaelis-Menten kinetics in the aqueous phase, enzyme deactivation by organic solvents and the equilibrium partitioning of the reagents between the two phases.