The effect of oxygen transfer on the production of immobilized whole cell beta-galactosidase has been evaluated. The encapsulated whole cell beta-galactosidase was prepared by combining cell encapsulation and culture into one-step. Escherichia coli was encapsulated and cultured in the growth and production media to accumulate beta-galactosidase in itself. Sunflower seed oil was coimmobilized to increase the oxygen transfer rate through the capsule membrane. The oxygen transfer rate increased 63 percent and the activity of beta-galactosidase increased by 10 percent. The activity of encapsulated beta-galactosidase obtained in the concentric air lift reactor was 86 percent higher than that in the shaking incubator. In the concentric air lift reactor, the accumulation of encapsulated whole cell beta-galactosidase was primarily dependent on the capsule velocity. While the accumulation of specific beta-galactosidase in the capsule increased with volumetric oxygen transfer coefficient, the cell biomass accumulated in the capsule decreased.