Microorganisms that bring about the aerobic transformation of imidacloprid (IMI) were isolated and screened, and the microbial regio- and stereoselective hydroxylation of IMI was studied. Some bacteria and fungi transformed IMI to 5-hydroxyl IMI. Bacterium Stenotrophomonas maltophilia CGMCC 1.1788 resting cells transformed IMI into R-5-hydroxyl IMI at the highest conversion rate. The enzyme catalyzed the stereoselective hydroxylation at position C12 of IMI in the imidazolidine ring. Under acidic conditions, 5-hydroxyl IMI was converted into olefin IMI in high molar conversion yield. The olefin IMI exhibited about 19 and 2.2 times more insecticidal efficacy than IMI against horsebean aphid imago and nymph, respectively, and about 1.4 times more active than IMI against brown planthopper imago. The transformation rate of IMI by resting cells of S. maltophilia CGMCC 1.1788 was promoted significantly by some carbohydrates and organic acids. The reaction medium with 5% sucrose resulted in 8.3 times greater biotransformation yield as compared with that without sucrose.