As a means of integrating cell growth and immobilization, Escherichia coli with the cloned nar promoter on the pBR322 plasmid, which is maximally induced under anaerobic conditions in the presence of nitrate, was immobilized in liquid-core alginate capsules and cultured to a high cell density. The total beta-galactosidase activity obtained by immobilized cells was about 6 fold greater than that obtained by free cells. Using the immobilized beta-galactosidase in the whole cells, the substrate lactose was hydrolyzed to glucose and galactose stably with a conversion efficiency of more than 80% for 15 repeated batches at 30 degrees C for 5 days.