β-Galactosidase was immobilized on chitosan-coated magnetic Fe₃O₄ nanoparticles and was used to produce galactooligosaccharides (GOS) from lactose. Immobilized enzyme was prepared with or without the coupling agent, tris(hydroxymethyl)phosphine (THP). The two immobilized systems and the free enzyme achieved their maximum activity at pH 6.0 with an optimal temperature of 50 °C. The immobilized enzymes showed higher activities at a wider range of temperatures and pH. Furthermore, the immobilized enzyme coupled with THP showed higher thermal stability than that without THP. However, activity retention of batchwise reactions was similar for both immobilized systems. All the three enzyme systems produced GOS compound with similar concentration profiles, with a maximum GOS yield of 50.5% from 36% (w·v⁻¹) lactose on a dry weight basis. The chitosan-coated magnetic Fe₃O₄ nanoparticles can be regenerated using a desorption/re-adsorption process described in this study.