Lipase from Pseudomonas cepacia was used for asymmetric hydrolysis of the substrate (+/-)1-chloro-2-acetoxy-3-(1-naphthyloxy)-propane, which is a precursor for (S)-(-)-beta-blocker synthesis. Because this substrate is insoluble in water and partially soluble in hydrophobic solvents such as hexane and octane, a mixture of hydrophilic organic solvents and aqueous buffer was used to study the initial reaction rates. Because of the amphipathic nature of the substrate, it can remain in three different forms : (1) monomeric (solution); (2) micellar; and (3) emulsion, depending on the acetone and substrate concentrations in the medium. This behavior is presented in a phase diagram. The enzyme was found to be active with micelle as well as emulsion form of the substrate, whereas it showed negligible activity with the monomeric form. Michaelis-Menten constants were determined experimentally for the emulsion and micellar part of the substrate. The initial rate of hydrolysis (v(0)) goes through a maximum with respect to the acetone content of the mixture. It is due to the combined effect of various factors occurring simultaneously with the increase in acetone content in the solvent. These phenomena are discussed based on the interfacial activation of lipase, deactivation of the enzyme at very high acetone concentration, and increase in critical micelle concentration (CMC) and critical emulsion concentration (CEC) with the increase in acetone content in the solvent,