A novel approach for the isolation and purification of penicillin acylase (PA), which couples aqueous two-phase partitioning and enzyme immobilization has been investigated. A PA yield of 90% was achieved by treating E. coli cells with 4% butyl acetate, freeze-thawing step, and pressure homogenization. PA purification (93% recovery) was achieved by (1) removing cell debris via precipitation with polyethylene glycol (PEG 2000); (2) aqueous two-phase partitioning using a PEG 2000 + phosphate system (87% recovery). An in situ enzyme immobilization approach, using oxirane acrylic or aldehyde-agarose beads dispersed in the PEG-rich phase, was explored for the conversion of penicillin G to 6-aminopenicillanic acid. An appropriate immobilization reaction time was found. The catalytic performance of the enzyme, when immobilized, was found not to be affected by recycling of the phase-forming components.