The thermotolerant yeast, Kluyveromyces marxianus IMB3 produced 11g ethanol/l during growth at 45 degrees C on media containing 4% (w/v) lactose when immobilized in alginate beads whereas the free cells produced 5g ethanol/l. A magnetically responsive biocatalyst, prepared by incorporating Fe3O4 into the alginate matrix increased ethanol production to 12g/l in batch-fed reactors. Ethanol concentrations were further increased to a maximum of 18g/l by immobilization of the endogenous K. marxianus beta-galactosidase to the Fe3O4 particles prior to inclusion into the alginate matrix. Maximum ethanol productivity by the system was 87% of the maximum theoretical yield.