Acetobacter aceti MIM 2000/28 was employed for the oxidation of 2-phenyl-1-ethanol. Oxidation in aqueous systems gave phenylacetic acid with high yields, while the use of a two-liquid phase system (composed of water and isooctane) allowed for the production of the corresponding aldehyde. Free cells showed poor operational stability and were immobilized in calcium alginate; immobilized cells had specific activity, substrate tolerance and stability higher than that obtained with free cells. Simple fed-batch operation with immobilized cells in an air-lift reactor allowed for the production of 23 g l(-1) phenylacetic acid in 9 days without foam formation. (C) 2003 Elsevier Ltd. All rights reserved.