Casein hydrolysis was carried out in PEG-dextran two-phase system by using alpha-chymotrypsin immobilized on a water soluble polymer Eudragit S-100. This biocatalyst along with the substrate casein was predominantly found to partition into the PEG phase. Under these optimized conditions, the product was found to partition (84%) in the dextran phase. Removal of dextran phase at an appropriate time interval and replacing it with fresh dextran phase led to considerable enhancement of casein hydrolysis. The biocatalyst could be separated from the PEG phase by lowering the pH to 3.8 and again dissolved in PEG phase by increasing the pH to 7.6. Thus, this smart biocatalyst could be reused for casein hydrolysis in-PEG-dextran two-phase aqueous system.