Yeast cells of a fusant strain constructed by protoplast fusion of Saccharomyces cerevisiae and Kluyveromyces frugilis were immobilized on calcium alginate beads. The increment of the ethanol tolerance of this strain to 8.0%, when compared with the parent K, fragilis, was confirmed. Based on the results from jar fermentation, a packed-bed reactor of theh immobilized yeast cells was operated. The optimal performance of the immobilized yeast reactor for ethanol production was achieved when supplying 10% lactose (suplemented 1.0% yeast extract) at a temperature of 30.deg.C. The maximal ethanol productivity was obtained as 13.3 g/I/hr at a dilution rate of $0.76 hr^{-1}$.