The design and characterization of a biocatalyst with whole cells of E. coli containing penicillin acylase activity were carried out. The biocatalyst was prepared by gel entrapment using a two-phase dispersion system consisting of a suspension of cells and agar in oil. The catalyst was characterized in terms of its kinetic and diffusional properties as a function of particle size, as well as its storage and operational stability. An economical analysis of the process was taken as the basis for a rational design of a genetic engineering programme to improve the specific activity of the biocatalyst.