The selective oxidation of aryl substrates to chiral cis-1,2-dihydrodiols is an industrially important reaction for the production of intermediates that can be used to produce fine chemicals, pharmaceuticals, and many other bioactive natural products. More specifically, the oxidation of naphthalene to produce optically pure (+)-cis-(1R,2S)-1,2-napthalene dihydrodiol (NDHD) to be used as a chiral synthon for specialty chemicals has gained much interest. Escherichia coli JM109(DE3) pDTG141 expresses naphthalene dioxygenase which catalyzes this reaction. Poor substrate solubility and substrate toxicity are barriers to using the power of these enzymes in large-scale aqueous whole cell systems. A biphasic reaction system was chosen to overcome these barriers. The optimal biphasic conditions for E. coli JM109(DE3) pDTG141 were determined to be 20% dodecane as the organic solvent containing 40 g/L naphthalene. The productivity of the biotransformation using resting cells was 1.75 g-diol/g-cdw/h for the first 6 h with 20% organic phase, which was increased from 0.59 g-diol/g-cdw/h for growing cells with 40% organic phase. The biocatalytic activity was retained for at least 12 h. The biocatalyst could be recycled for at least four runs in both suspended and immobilized form. The stability of the 12 h recycle was improved by immobilization in calcium alginate beads. The process has been improved both environmentally and economically by reducing the amount of solvent used and by recycling the biocatalyst.