A novel beta-keto ester reductase (KER) was purified to homogeneity from recombinant Escherichia coli (pTrcKER) cells, which efficiently expressed the ker gene cloned from Penicillium citrinum IFO4631. The enzyme was monomeric and had a molecular mass of 37 kDa. It catalyzed the reduction of some beta-keto esters, especially alkyl 4-halo-3-oxobutyrates. However, it did not catalyze the reverse reaction, the dehydrogenation of alkyl 4-halo-3-hydroxybutyrates and other alcohols. The enzyme required NADPH as a cofactor and showed no activity with NADH. Therefore, it was defined as a NADPH-dependent aldo-keto reductase (AKR3E1), belonging to the AKR superfamily. The enzyme stereospecifically produced methyl (S)-4-bromo-3-hydroxybutyrate from its keto derivative with high stereospecificity (97.9% enantiomer excess). E. coli cells expressing KER and glucose dehydrogenase in the water/butyl acetate two-phase system achieved a high productivity of (S)-4-bromo-3-hydroxybutyrate (277 mM, 54 mg/ml) in the organic solvent layer.