The two-liquid phase concept was used to develop a whole cell biocatalytic system for the efficient multistep oxidation of pseudocumene to 3,4-dimethylbenzaldehyde. Recombinant Escherichia coli cells were employed to express the Pseudomonas putida genes encoding xylene monooxygenase, which catalyzes the multistep oxygenation of one methyl group of toluene and xylenes to corresponding alcohols, aldehydes, and acids. A fed-batch based two-liquid phase bioconversion was established with bis(2-ethylhexyl)- phthalate as organic carrier solvent and a phase ratio of 0.5; the product formation pattern, the impact of the nutrient feeding strategy, and the partitioning behavior of the reactants were studied. On the basis of the favorable conditions provided by the two-liquid phase system, engineering of the initial pseudocumene concentration allowed exploiting the complex kinetics of the multistep reaction for the exclusive production of 3,4-dimethyl- benzaldehyde. Further oxidation of the product to 3,4-dimethylbenzoic acid could be inhibited by suitable concentrations of pseudocumene or 3,4-dimethylbenzyl alcohol. The optimized biotransformation setup includes a completely defined medium with high iron content and a nutrient feeding strategy that avoids severe glucose limitation as well as high inhibitory glucose levels. Using such a system on a 2-liter scale, we were able to produce, within 14.5 h, 30 g of 3,4-dimethylbenzaldehyde as predominant reactant in the organic phase and reached a maximal productivity of 1.6 g per liter liquid volume per hour. The present study implicates that the two-liquid phase concept is an efficient tool to exploit the kinetics of multistep biotransformations in general.