A novel bioreactor with hollow fibres was developed to facilitate substrate transfer across membrane walls as well as to retain a continuous cell growth in the shell side. Ultrafiltration was induced through membrane by pressurizing feed solution to the inside of a hollow fibre with inlet and outlet pumps. The ultrafiltrate accumulated outside the hollow fibres was recirculated through a reservoir where a part of solution containing cells and substrate was removed to keep the level of reservoir solution constant. Ethanol production by Saccharomyces cerevisiae was carried out to test the feasibility of this reactor. The productivity of this reactor was compared with that of a continuous stirred tank reactor (CSTR).