The capacity of a Neurospora crassa fungal system to produce oxidative enzymes, and their application in the biodegradation of phenolic compounds, was demonstrated in static and shaken non-immobilized batch cultures, and by capillary membrane-immobilized biofilms. Extracellular laccase activity was produced at 10-12 U/mL (800 U/g wet mass) in static flask cultures, and 1.5 U/mL (130 U/g wet mass) in shaken batch cultures, respectively, over 8-15 days. Polyphenol oxidase was shown to be produced as an intracellular enzyme, at levels of 374 U/g wet mass. The production of laccase in a capillary membrane bioreactor was sustained at a level of 10 U/mL of permeate (1080 U/g wet biomass), typically over 30-40 days. Two phenolic substrates, phenol and p-cresol, both common components of industrial effluent streams, were chosen as model pollutants for bioremediation studies using the N.crassa enzyme system. In flask cultures, 18 mg p-cresol and 23 mg phenol respectively were removed from 5 mM solutions/g wet biomass, over a 6 day period. Over the same time period, immobilized cultures were found to convert 10 mg p-cresol or 8 mg phenol/g biomass. The immobilized biomass in a continuous reactor was found to have the capacity to sustain this removal efficiency continuously for a 4-month period, whereas the batch liquid culture systems remained active for approximately 8-15 days, after which cultures were no longer viable. This is the first demonstration of the use of immobilized N.crassa biofilms and their continuous application for bioremediation of phenols.