Activity of lipase (candida cylindracea) in reversed micelles was found to be sustained over extended periods of time in the presence of amphiphilic substrates. Esterification of palmitic or oleic acid and octanol was studied to characterize the lipase activity in AOT/isooctane reversed micelles. Complete conversion was possible even in the presence of stoichiometric excess of water. In the absence of acyl substrates, the enzyme lost all its activity within a few hours in reversed micelles. Thermal effects on the enzyme activity were studied, and the enzyme stability in reversed micelles was compared to that in a bulk organic solvent.