Using free and immobilized whole cells of Pichia pastoris, the biocatalytic oxidation of benzyl alcohol was investigated in different two-phase systems. This reaction was strongly influenced by both the substrate and product inhibitions, and the production rate of benzaldehyde in the aqueous system became maximum at the initial substrate concentration of ca. 29 g/L with the aldehyde formation less than 4 to 5 g/L even after a longer reaction period. The reaction rates in the two-liquid phase systems were predominantly determined by the partitioning behaviors of the substrate and product between the two phases rather than by enzyme deactivation by the organic solvents. In the two-liquid phase systems, consequently, the organic solvent acted as a reservoir to reduce these inhibitory effects, and it was essential to select the organic solvent providing the optimal partitioning of the substrate into the aqueous phase as well as the preferential extraction of the product into the organic phase. The whole cells immobilized in a mixed matrix composed of silicone polymer [>50% (v/v)] and Ca alginate gel (<50%) worked well in the xylene and decane media, providing comparable activities with the free cells. The production rate of aldehyde was also influenced by the solute partitioning into the hydrophilic alginate phase where the cells existed.