A simple structured mathematical model coupled with a methodology of state and parameter estimation is developed for lipase production by Candida rugosa in batch fermentation. The model describes the system according to the following qualitative observations and hypothesis : Lipase production is induced by extracellular oleic acid present in the medium. The acid is transported into the cell where it is consumed, transformed, and stored. Lipase is excreted to the medium where it is distributed between the available oil-water interphase and aqueous phase. Cell growth is modulated by the intracellular substrate concentration. Model parameters have been determined and the whole model validated against experiments not used in their determination. The estimation problem consists in the estimation of three state variables (biomass, intra- and extracellular substrate) and two kinetic parameters by using only the on-line measurement provided by exhaust gas analysis. The presented estimation strategy divides the complex problem into three subproblems that can be solved by stable algorithms. The estimation of biomass (X) and the specific growth rate (mu), is achieved by a recursive prediction error algorithm using the on-line measurement of the carbon dioxide evolution rate. mu is then used to perform an estimation of intracellular substrate and the other kinetic parameter related to substrate transport (A) by an adaptive observer. Extracellular substrate is then evaluated by means of the estimated values of intracellular substrate and biomass through the material balance of the reactor. Simulation and experimental tests showed good performance of the developed estimator, which appears suitable to be used for process control and monitoring.