A fresh-water, nitrogen-fixing blue-green alga (cyanobacterium), Scytonema sp. No. 11 (TISTR 8208), was isolated from a paddy field in northern Thailand. This alga produced bioactive substances and secreted them into the culture medium. These substances have antibiotic activity toward B. subtilis, and mitogen activity. The production of antibiotics was easily monitored with a spectrophotometer, because they are produced concomitantly with colored substances. The conditions for antibiotic production were investigated and optimized with respect to pH, temperature, nitrogen source, and light intensity. Immobilization of cells was investigated in connection with its subsequent application to photobioreactors. The filamentous nature of this alga enabled cell immobilization in porous carriers of polyurethane foam. The porosity of the carrier was the most important factor for maximum holding of the filaments and, thus, for the highest productivity. Light intensity and CO2 supply affected antibiotic production in bioreactors with the immobilized biocatalyst. These results are presented along with the design and characterization of a new photobioreactor.