Phenol bioconversion by Pseudomonas stutzeri OX1 using either free or immobilized cells was investigated with the aim of searching for optimal operating conditions of a continuous bioconversion process. The study was developed by analyzing: (a) free-cell growth and products of phenol bioconversion by batch cultures of P. stutzeri; (b) growth of P. stutzeri cells immobilized on carrier particles; (c) bioconversion of phenol-bearing liquid streams and the establishment and growth of an active bacterial biofilm during continuous operation of an internal-loop airlift bioreactor. We have confirmed that free Pseudomonas cultures are able to transform phenol through the classical meta pathway for the degradation of aromatic molecules. Data indicate that bacterial growth is substrate-inhibited, with a limiting phenol concentration of about 600 mg/L. Immobilization tests revealed that a stable bacterial biofilm can be formed on various types of solid carriers (silica sand, tuff, and activated carbon), but not on alumina. Entrapment in alginate beads also proved to be effective for P. stutzeri immobilization. Continuous bioconversion of phenol-bearing liquid streams was successfully obtained in a biofilm reactor operated in the internal-circulation airlift mode. Phenol conversion exceeded 95%. Biofilm formation and growth during continuous operation of the airlift bioreactor were quantitatively and qualitatively assessed.