Intact cells of Gluconobacter oxydans CCRC 10383 produced cephalexin from 7-amino-3-deacetoxy cephalosporanic acid (7-ADCA) and D-alpha-phenylglycine methylester HC1 (PGM). Factors affecting the production of cephalexin by G. oxydans CCRC 10383 were studied. The optimum pH and temperature for the synthetic reaction of cephalexin were 6.0 and 42 degrees C, respectively. A higher concentration of PGM than 7-ADCA was required to obtain a good yield of cephalexin.