An economical and convenient biocatalytic process was developed for the preparation of (S)-1-phenyl-1,2-ethanediol (PED), which is a valuable chiral building block for pharmaceuticals and liquid crystals, by stereoselective microbial conversion from the corresponding racemate. As a result of screening bacteria, yeasts, and molds, the enantioselective conversion of racemic PED by Candida parapsilosis CCTCC M203011 was found to be the most efficient process to produce (S)-PED with high optical purity of 98% ee and yield of 92%. By detecting the intermediate produced in the reaction by GC−MS, it was suggested that (S)-enantiomer was produced from the intermediate identified as β-hydroxyacetophenone by asymmetric reduction after stereoselective oxidation of (R)-enantiomer to β-hydroxyacetophenone. After investigating the cofactor requirement and stereospecificity of the reaction catalyzed by the cell-free extract from C. parapsilosis CCTCC M203011, it was found that the stereoselective conversion involved the oxidation of (R)-PED to the intermediate with NADP+ as the cofactor and the reduction reaction that formed the product used NADH as the cofactor, which was catalyzed by a novel cofactor-dependent oxidoreduction system. The NADP+-dependent (R)-specific alcohol dehydrogenase involved in stereoinversion was purified from C. parapsilosis CCTCC M203011, which has a relative molecular mass of 45kD.