A method for microbial production of epoxides and other oxygenated products is disclosed. The method uses a biocatalyst of methanotrophic bacteria cultured in a biphasic medium containing a major amount of a non-aqueous polar solvent. Regeneration of reducing equivalents is carried out by using endogenous hydrogenase activity together with supplied hydrogen gas. This method is especially effective with gaseous substrates and cofactors that result in liquid products.
 This invention was made with United States Government support under Contract No. DE-AC07-94ID13223, now Contract No. DE-AC07-99ID13727 awarded by the United States Department of Energy. The United States Government has certain rights in the invention.