Alcoholysis reactions were performed in organic one-phase liquid systems with E. coli beta -galactosidase to produce heptyl-beta -galactoside from lactose and 1-heptanol. The reaction rate was highly dependent on the amount of water solubilized in the alcohol. A larger amount of water led to a system of two liquid phases in which the alcoholysis rate was 73% faster than in the one-phase system. No hydrolysis reaction of either lactose or product was observed in one-phase liquid systems up to 20 h, independent of the water content. Solubility of lactose in the organic phase increased with the water content in the system and the reaction followed the Michaelis-Menten model. Water activity was calculated for heptanol containing different amounts of water and the obtained values were used to estimate the hydration of p-galactosidase from known models. Enzyme activity correlated with sorbed water, similar to the behavior reported for lysozyme in low water environments. It is concluded that water contribution to enzyme hydration dominates the rate of reaction compared to its effect on lactose solubilization.