Air-lift bioreactors containing suspended or immobilized animal cells have been used for the production of a variety of high-value biologicals. In the bioprocessing industry, there is a need to study and quantify the relationships between bioreactor-system properties such as mixing, flow, mass transfer, and cell processes. In the present study, the performance of a 1-L external-loop air-lift bioreactor was investigated by studying gas-liquid oxygen transfer, mixing time, liquid velocity and gas hold-up at various aeration rates. These studies were performed over a range (0-25%) of loadings of small (500-800 μm) calcium alginate beads to investigate the effect of using various concentrations of cell immobilization matrices on the physical properties of the system. At an aeration rate of 0.5 vvm, the mixing time was decreased by 50%, from 75 s at 0% bead loading to 38 s at 10% bead loading. A minimum liquid velocity of 10 cm/s was required to keep the alginate beads in suspension. As bead loading increased, flow within the reactor went from turbulent conditions to the transition zone. At all bead loadings tested, the gas hold-up increased by only 2% with an increase in aeration rate from 0.1 to 1.0 vvm, regardless of whether the total reactor volume (i.e., liquid and beads) or the liquid volume was used in calculating the hold-up. A mathematical correlation was developed for expressing the dependence of the volumetric mass-transfer coefficient, k1a, on aeration rate (vvm) and microbead loading. With this equation it was possible to predict, within 20%, the k1a knowing the gas-flow rate and the volume percentage of microbeads present in the bioreactor. A theoretical study was also performed to calculate the oxygen transfer from the bulk liquid to the center of microcapsules containing animal cells using experimental k1a data. The results suggest that whereas there is no oxygen limitation at 10 to 15% microcapsule loading, there is a potential mass-transfer problem at 25% loading if the bioreactor is operated at an aeration rate of less than 1.06 vvm.