BACKGROUND: Hydrolysis of lactose with beta-D-galactosidase is one of the most promising biotechnological applications in the food industry because of its use in the production of low lactose milk products and whey hydrolysis. To overcome the problem of enzyme extraction from cells due to the intracellular nature of beta-D-galactosidase and the poor permeability of the cell membrane to lactose, permeabilization of yeast cells was investigated. Permeabilized whole cells have been claimed to have an advantage over more pure enzyme preparations. In view of the advantages of immobilized cell systems over free cell systems, permeabilized cells were immobilized by an entrapment method in calcium alginate gel. A packed bed reactor together with this immobilized cell system has been used for hydrolysis of milk lactose in a continuous system. RESULTS: Different process parameters (temperature, substrate feed rate, biomass load and time-course) were optimized to maximize lactose hydrolysis. The immobilized yeast cells (300 mg dry wt) resulted in 87.2% hydrolysis of milk lactose at 30 degrees C and flow rate 7 mL h(-1) in a packed bed reactor system. CONCLUSION: This convenient and relatively inexpensive method of immobilization, resulting in high hydrolysis potential in a continuous system, indicates that permeabilized yeast cells have the potential for the production of low lactose milk and milk products. (C) 2010 Society of Chemical Industry