Abstract This paper describes the kinetic characterization of a recombinant whole-cell biocatalyst for the stereoselective Baeyer–Villiger type oxidation of bicyclo[3.2.0]hept-2-en-6-one to its corresponding regio-isomeric lactones (−)-(1 S,5 R)-2-oxabicyclo[3.3.0]oct-6-en-3-one and (−)-(1 R,5 S)-3-oxabicyclo[3.3.0]oct-6-en-2-one. Escherichia coli TOP10 [pQR239], expressing cyclohexanone monooxygenase (CHMO) from Acinetobacter calcoaceticus (NCIMB 9871), was shown to be suitable for this biotransformation since it expressed CHMO at a high level, was simple to produce, contained no contaminating lactone hydrolase activity and allowed the intracellular recycle of NAD(P)H necessary for the biotransformation. A small-scale biotransformation reactor (20 ml) was developed to allow rapid collection of intrinsic kinetic data. In this system, the optimized whole-cell biocatalyst exhibited a significantly lower specific lactone production activity (55–60 μmol min −1 g −1 dry weight) than that of sonicated cells (500 μmol min −1 g −1 dry weight). It was shown that this shortfall was comprised of a difference in the pH optima of the two biocatalyst forms and mass transfer limitations of the reactant and/or product across the cell barrier. Both reactant and product inhibition were evident. The optimum ketone concentration was between 0.2 and 0.4 g l −1 and at product concentrations above 4.5–5 g l −1 the specific activity of the whole cells was zero. These results suggest that a reactant feeding strategy and in situ product removal should be considered in subsequent process design.