Biocatalysis involves the use of enzymes to perform stereo- and enantio-specific reactions. One of the reactions where biocatalysis is a valuable technology is oxidation of naphthalene to 1-naphthol using Toluene ortho-Monooxygenase (TOM) variant TmoA3 V106A, also known as TOM-Green. Whole-cell biocatalysis in a water-organic solvent biphasic system was used to minimize naphthalene and 1-naphthol toxicity, and to increase substrate loading. Recombinant Escherichia coli TG1 cells expressing TOM-Green were used for biphasic biocatalysis and lauryl acetate gave best results among the solvents tested. On a constant volume basis, 8 - fold improvement in 1-naphthol production was achieved using biphasic systems compared to biotransformation in aqueous medium. The organic phase was optimized by studying the effects of organic phase ratio and naphthalene concentration in the organic phase. The efficiency of biocatalysis was further improved by application of a solvent tolerant strain Pseudomonas putida S12. P. putida S12 is solvent tolerant owing to its two adaptive mechanisms: outer membrane modification and solvent extrusion using solvent resistant pump srpABC. P. putida S12, in addition to its tolerance to various organic solvents, showed better tolerance to naphthalene compared to E. coli TG1 strain expressing TOM-Green. Application of solvent tolerant P. putida S12 further improved 1-naphthol productivity by approximately 42%. Solvent tolerance of P. putida S12 was further analyzed by transferring its tolerance to a solvent sensitive E. coli strain by transfer of solvent resistant pump srpABC genes. Engineered E. coli strain bearing srpABC genes either in low-copy number plasmid or high-copy number plasmid grew in the presence of a saturated toluene concentration. Engineered E. coli strains were also more tolerant to toxic solvents, e. g., decanol and hexane, compared to the control E. coli strain without srpABC genes. The expression of solvent resistant pump genes was confirmed by Reverse Transcriptase PCR analysis. The main drawbacks of biocatalysis for production of chemicals were addressed and approaches to minimize the drawbacks have been presented. The production of 1-naphthol was significantly improved using biocatalysis in liquid-liquid biphasic systems.