The production of galacto-oligosaccharides (GOS) from lactose by A. oryzae β-galactosidase immobilized on cotton cloth was studied. The total amounts and types of GOS produced were mainly affected by the initial lactose concentration in the reaction media. In general, more and larger GOS can be produced with higher initial lactose concentrations. A maximum GOS production of 27% (w/w) of initial lactose was achieved at 50% lactose conversion with 500 g/L of initial lactose concentration. Tri-saccharides were the major types of GOS formed, accounting for more than 70% of the total GOS produced in the reactions. Temperature and pH affected the reaction rate, but did not result in any changes in GOS formation. The presence of galactose and glucose at the concentrations encountered near maximum GOS greatly inhibited the reactions and reduced GOS yield by as much as 15%. The cotton cloth as the support matrix for enzyme immobilization did not affect the GOS formation characteristics of the enzyme, suggesting no diffusion limitation in the enzyme carrier. The thermal stability of the enzyme increased ∼25-fold upon immobilization on cotton cloth. The half-life for the immobilized enzyme on cotton cloth was more than 1 year at 40°C and 48 days at 50°C. Stable, continuous operation in a plugflow reactor was demonstrated for 2 weeks without any apparent problem. A maximum GOS production of 21 and 26% (w/w) of total sugars was attained with a feed solution containing 200 and 400 g/L of lactose, respectively, at pH 4.5 and 40°C. The corresponding reactor productivities were 80 and 106 g/L/h, respectively, which are at least several-fold higher than those previously reported. © 2002 John Wiley & Sons, Inc. Biotechnol Bioeng 77: 8–19, 2002.