<P><B>Background</B></P><P>The Crabtree-negative yeast species <I>Kluyveromyces lactis</I> has been established as an attractive microbial expression system for recombinant proteins at industrial scale. Its <I>LAC</I> genes allow for utilization of the inexpensive sugar lactose as a sole source of carbon and energy. Lactose efficiently induces the <I>LAC4</I> promoter, which can be used to drive regulated expression of heterologous genes. So far, strain manipulation of <I>K. lactis</I> by homologous recombination was hampered by the high rate of non-homologous end-joining.</P><P><B>Results</B></P><P>Selection for growth on lactose was applied to target the insertion of heterologous genes downstream of the <I>LAC4</I> promoter into the <I>K. lactis</I> genome and found to yield high numbers of positive transformants. Concurrent reconstitution of the β-galactosidase gene indicated the desired integration event of the expression cassette, and β-galactosidase activity measurements were used to monitor gene expression for strain improvement and fermentation optimization. The system was particularly improved by usage of a cell lysis resistant strain, VAK367-D4, which allowed for protein accumulation in long-term fermentation. Further optimization was achieved by increased gene dosage of <I>KlGAL4</I> encoding the activator of lactose and galactose metabolic genes that led to elevated transcription rates. Pilot experiments were performed with strains expressing a single-chain antibody fragment (scFv<SUB>ox</SUB>) and a viral envelope protein (BVDV-E2), respectively. scFv<SUB>ox</SUB> was shown to be secreted into the culture medium in an active, epitope-binding form indicating correct processing and protein folding; the E2 protein could be expressed intracellularly. Further data on the influence of protein toxicity on batch fermentation and potential post-transcriptional bottlenecks in protein accumulation were obtained.</P><P><B>Conclusions</B></P><P>A novel <I>Kluyveromyces lactis</I> host-vector system was developed that places heterologous genes under the control of the chromosomal <I>LAC4</I> promoter and that allows monitoring of its transcription rates by β-galactosidase measurement. The procedure is rapid and efficient, and the resulting recombinant strains contain no foreign genes other than the gene of interest. The recombinant strains can be grown non-selectively in rich medium and stably maintained even when the gene product exerts protein toxicity.</P>