Objectives Sodium dodecyl sulfate (SDS)-chitosan hydrogels have been employed for adsorption of anionic dyes and metallic substances. Two mutant forms of Thermoanaerobacter ethanolicus alcohol dehydrogenase (TeSADH) were used as model enzymes to develop a novel enzyme immobilization technique employing newly formulated porous chitosan hydrogels. Results The enzyme immobilized on chitosan hydrogel capsules formed by 5 g/l SDS gelation and subsequent treatment with 0.05 M NaOH was 28-35% higher in NADPH production than that formed by 20 g/l SDS gelation only under the same conditions. A 48-h asymmetric biphasic reduction of acetophenone with immobilized TeSADH enzyme at 50 degrees C showed 68% increase in (R)-1-phenylethanol production than the free enzyme. Compared to the free enzyme which denatured and lost its activity at 80 degrees C, the immobilized enzyme retained about 25% of its initial activity after 2-h incubation. Conclusion In contrast to the conventional chitosan hydrogel which suffers thermal and operational stability, the newly formulated porous chitosan hydrogel capsules have excellent enzyme loading efficiency and stable at harsh temperatures. Especially, this newly developed enzyme immobilization method would be applicable for food processing.