Liquid-phase oxidation of benzene or toluene with oxygen (100-140 o C, 5-10atm, in AcOH-H 2 O) catalysed by the Pd(OAc) 2 -H 5 [PMo 1 0 V 2 O 4 0 ] redox system leads mainly to oxidative coupling (biphenyl and terphenyl or bitolyl) and ring hydroxylation (phenol or cresol). The reaction has been carried out homogeneously (at [H 2 O] <15vol.% in the solvent) and in biphasic conditions including an arene phase and an AcOH-H 2 O catalyst phase (at [H 2 O] >15vol.%). The biphasic oxidation using AcOH-H 2 O 80:20 (v/v) as the solvent has been found to be more efficient towards the oxidative coupling than the homogeneous system (AcOH-H 2 O 95:5 (v/v)) in terms of both catalytic activity and selectivity to biaryls. Increasing the H 2 O/AcOH ratio in the solvent (up to AcOH-H 2 O 30:70 (v/v)) greatly enhances the ring hydroxylation to form phenol with 64% selectivity at 6% benzene conversion (100 o C, 5atm O 2 , 2h).