Pseudomonas fragi biomass was produced on whey and whey permeate with and without supplementation with various concentrations of butyric or valeric acid. The biomass produced in whey supplemented with 0.1% butyric acid possessed the highest ethylating activity of valeric acid in the presence of ethanol. The performance of the ethylating activity of P. fragi biomass was studied in aqueous medium under conditions of in-situ product removal using gas stripping. From 1000 ppm valeric acid and 2000 ppm ethanol, resting cells of P. fragi produced more than 800 ppm total fatty acid ethyl esters of which valeric acid ethyl ester accounted for more than 90%. The use of a gas stripping technique resulted in a 3.6-fold and 4.4-fold increase in the formation of total fatty acid and valeric acid ethyl esters, respectively, as compared to bioconversions conducted under conditions of product accumulation.