Free and calcium alginate entrapped cells of four microorganisms namelyPseudomonas aeruginosa, Pseudomonas fluorescens, Serratia sp., and Yersiniasp, have been examined for degradation of phenol, present in oil refinery effluent by observing growth and tolerance capacity against toxic effects of phenol. The study of tolerance capacity of all the four microorganisms for different sublethal concentrations have shown that phenol concentrations above 200 mg/l was toxic toPseudomonas fluorescens, while other three microorganisms tolerated phenol upto 400 mg/l. These four microorganisms were mixed for the formulation of microbial consortia and further used for the biodegradation of phenol present in oil refinery effluent. At bacteriostatic concentrations of phenol, toxicity effect has been found to be significantly lower in the case of immobilized bacteria in comparison to free cells. The immobilized microorganisms have been found to degrade 100% of phenol in 96 hrs., while the free cells degraded 80% phenol in 96 hrs. The oil refinery effluent's pollutional strength has been determined on the basis of Chemical Oxygen Demand (COD) and Biochemical Oxygen Demand (BOD) tests besides the determination of phenol contents in various layers of oil refinery effluent. The immobilized mixed bacterial cells were able to degrade 37% of phenol present in oil refinery effluent within 6 hrs. The viability of the system is discussed in terms of its industrial application.