An extracellular lipase isolated from Bacillus megaterium AKG-1 had an optimum activity at 55 degrees C/pH 7.0. It retained 100% activity at 50 degrees C for 30 min with a half life of 30 min at 70 degrees C. A 20-70% increase in lipase activity was observed in presence of acetone (20% v/v), DMSO (20% v/v) and isopropanol (10% v/v). The enzyme activity was 92, 98 and 107% after 24 h, on treatment with 10% (v/v) acetone, benzene and isopropanol respectively. Deoxycholic acid, sodium deoxycholate, lithocholic acid, rhamnolipid, Brij 52 and cholic acid stimulated the lipase activity by 76, 36, 24, 24, 23.6 and 13%, respectively. Addition of reducing agents like sodium sulphite, sodium metabisulphite and L-cysteine-HCl, at 10 mM concentration stimulated lipase activity by 127, 146 and 150% respectively. The lipase appeared to show enantioselectivity in hydrolyzing racemic 3-acetoxy-beta-lactam as it hydrolyzed only the (+) enantiomer.