A total of 400 yeast strains were examined for the ability to reduce ethyl 4-chloroacetoacetate (COBE) to ethyl 4-chloro-3-hydroxybutyrate (CHBE) by using acetone-dried cells in the presence of a coenzyme-recycling system in water/n-butyl acetate. We discovered some yeast strains that reduced COBE to (S)-CHBE. Heating of acetone-dried cells of the selected yeast strains increased the optical purity of the product. There may be several enzymes that can reduce COBE stereoselectively in the same yeast cells. The cultured broth of Candida magnoliae accumulated 90 g/l (S)-CHBE (96.6% enantiomeric excess, e.e.) in the presence of glucose, NADP and glucose dehydrogenase in ri-butyl acetate. When these cells were heated, the stereoselectivity of the reduction increased to 99% e.e. (S)-CHBE is one of the useful chiral building blocks applicable to the synthesis of some pharmaceuticals. We expect that the cheap and industrial production of this important chiral compound will follow the discovery of this yeast strain.