Extractive fermentation in aqueous two-phase systems is a meaningful approach to overcome low product yield in a conventional fermentation process, and by proper design of the two-phase system it is possible to obtain the product in a cell-free stream. The characteristics of an aqueous two-phase system, various polymers used for forming an aqueous two-phase system, the physicochemical parameters of the aqueous two-phase system, partitioning of biomolecules and cell mass and the effect of individual phase forming polymers on cell growth and product formation are reviewed in this article. The various extractive fermentation processes are also summarised here. At the end, the economic viability and scope of aqueous two-phase fermentation are briefly discussed in relation to the wider application of this topic.