A novel polyethylene glycol-induced cloud point system (PEG-CPS) was developed for in situ extraction of moderate polar product by setting a microbial transformation of benzaldehyde into L-phenylacetylcarbinol (L-PAC) with Saccharomyces cerevisiae (baker's yeast) as a model reaction. The biocompatibility of the microorganism in PEG-CPS was comparatively studied with a series of water-organic solvent two-phase partitioning systems. The tolerance of microorganism to the toxic substrate benzaldehyde was increased and the moderate polar product L-PAC was extracted into the surfactant-rich phase in the PEG-CPS. The novel PEG-CPS fills the gap of in situ extraction of polar product in microbial transformation left by water-organic solvent two-phase partitioning system. At the same time, the application of PEG-CPS in a microbial transformation also avoids expensive solvent when compared with that of aqueous two-phase system or CPS.