The enzymatic hydrolysis of potassium salt of penicillin G (Pen G) into phenylacetic acid (PAA) and potassium salt of 6-aminopenicillanic acid (APA) is inhibited not only by the substrate and the product APA but also by the by-product PAA. The partitioning behaviour of PAA in a cloud point system, a novel two-phase partitioning system, was determined. Direct extraction of PAA in the process of immobilised penicillin acylase hydrolysis of Pen G without pH control was achieved. Pen G was hydrolysed almost completely and the product APA concentration in the cloud point system was much higher than in the control, suggesting that the cloud point system may be applied as a novel extractive bioreactor for the enzymatic hydrolysis of Pen G. (c) 2006 Society of Chemical Industry.