A process of highly stereoselective reduction of ethyl 4-chloro-3-oxobutanoate (COBE) to ethyl (S)-4-chloro-3-hydroxybutanoate ((S)CHBE) was established, using whole-cells of a fungus, Aureobasidium pullulans CGMCC1244. A high production yield was observed in a biphasic system composed of potassium phosphate buffer (0.1 M, pH 6.5) and dibutylphthalate. The influence of reaction parameters such as shaking speed, volumetric phase ratio, reaction temperature, biomass/substrate ratio and pH was tested. It was found that these parameters considerably influenced the molar conversion and the initial reaction rate, but had no significant effect on the optical purity of the product. Under the optimum conditions, the maximum concentration of (S)-CHBE in the organic layer, the molar conversion and the optical purity reached 56.8 g l(-1), 94.5 and 97.7% enantionteric excess (ee), respectively. (C) 2005 Elsevier Ltd. All rights reserved.