The strain Kluyveromyces marxianus was selected to isolate enzyme β-galactosidase, to hydrolyze lactose in whey to prepare instant energy beverage. The cells were immobilized in 5.0% sodium alginate gel for their subsequent use in hydrolysis of lactose in whey. The immobilized cell system was found beneficial in reducing the cost of the product and increase reusability of enzyme. Various process parameters were optimized. Maximum yield of the lactose hydrolysis i.e., 81.2% was found with microbial cells immobilized in 10.0% CaCl₂ solution with a bead size of 2.20 mm. The system was stable and beads could be reused up to eighth cycle without any remarkable change in their ability to carry out lactose hydrolysis in whey.