Emulsion stability plays a crucial role for mass transfer and downstream processing in organic-aqueous bioprocesses based on whole microbial cells. In this study, emulsion stability dynamics and the factors determining them during two-liquid phase biotransformation were investigated for stereoselective styrene epoxidation catalyzed by recombinant Escherichia coli. Upon organic phase addition, emulsion stability rapidly increased correlating with a loss of solubilized protein from the aqueous cultivation broth and the emergence of a hydrophobic cell fraction associated with the organic-aqueous interface. A novel phase inversion-based method was developed to isolate and analyze cellular material from the interface. In cell-free experiments, a similar loss of aqueous protein did not correlate with high emulsion stability, indicating that the observed particle-based emulsions arise from a convergence of factors related to cell density, protein adsorption, and bioreactor conditions. During styrene epoxidation, emulsion destabilization occurred correlating with product-induced cell toxification. For biphasic whole-cell biotransformations, this study indicates that control of aqueous protein concentrations and selective toxification of cells enables emulsion destabilization and emphasizes that biological factors and related dynamics must be considered in the design and modeling of respective upstream and especially downstream processes.