Activated sludge treatment of wastewater was successfully carried out by a plunging liquid jet bioreactor with crossflow filtration. The TOC removal efficiency was above 95% in the continuous treatment in which influent BOD concentration was increased in steps from 150 to 1200 g/m(3). Removal function of cake layer largely contributed to the overall treatment performance and stability of the bioreactor system. Cake layer was found to act as a dynamically formed ultrafiltration membrane. The observed rejection of poly(ethylene glycol) having a molecular weight of 20000 by the cake layer was about 40%. The removal function of cake layer was explained by both biodegradation in and solute rejection by the cake layer. The rejection by the cake layer played a major role in the removal function of cake layer. Performance of the bioreactor system was simulated based on a mathematical model. A case study for the treatment of small-scale gray-water was carried out using the model. The required working volume was reduced to about one half compared to that of the conventional activated sludge process when the cake layer had an observed rejection of only 20%. The cake layer also contributed to treatment performance and operation. Design and operational considerations were also discussed. It was concluded that the bioreactor system has a high potential for small-scale treatment of domestic wastewater.