Abstract Klebsiella oxytoca converts lactose to 2,3-butanediol under oxygen-limiting conditions. For an initial lactose concentration of 149.7 g l −1, a butanediol yield of 0.207 gg −1 was obtained with a corresponding productivity of 0.861 g l −1h −1 at an initial volumetric oxygen transfer coefficient of 93.4 h −1. Increasing lactose concentrations did not inhibit cell growth but indirectly influenced 2,3-butanediol yield and productivity by affecting specific oxygen availability to the cells. 2,3-Butanediol inhibited specific growth rate but had less influence on specific rate of product formation. However, at high lactose concentration, inhibition by 2,3-butanediol of growth was reduced. Oxygen transfer rate affected productivity, and cell and product yields. An optimum oxygen transfer rate is needed to maximize product yield and productivity at different initial lactose concentrations.