A novel membrane bioreactor configuration containing both free and encased cells in a single reactor was proposed in this work. The reactor consisted of 120 g/L of free cells and 120 g/L of encased cells in a polyvinylidene fluoride membrane. Microcrystalline cellulose (Avicel) and D-Limonene were used as the models of substrate and inhibitor for biogas production, respectively. Different concentrations of D-Limonene i.e., 1, 5, and 10 g/L were tested, and an experiment without the addition of D-Limonene was prepared as control. The digestion was performed in a semi-continuous thermophilic reactor for 75 days. The result showed that daily methane production in the reactor with the addition of 1 g/L D-Limonene was similar to that of control. A lag phase was observed in the presence of 5 g/L D-Limonene; however, after 10 days, the methane production increased and reached a similar production to that of the control after 15 days. (C) 2014 Elsevier Ltd. All rights reserved.