β-galactosidases, commonly referred to as lactases, are used for producing lactose-free dairy products. Lactases are usually purified from microbial sources, which is a costly process. Here, we explored the potential that lies in using whole cells of a food-grade dairy lactic acid bacterium, Streptococcus thermophilus, as a substitute for purified lactase. We found that S. thermophilus cells, when treated with the antimicrobial peptide nisin, were able to hydrolyze lactose efficiently. The rate of hydrolysis increased with temperature; however, above 50 °C, stability was compromised. Different S. thermophilus strains were tested, and the best candidate was able to hydrolyze 80% of the lactose in a 50 g/L solution in 4 h at 50 °C, using only 0.1 g/L cells (dry weight basis). We demonstrated that it was possible to grow the cell catalyst on dairy waste, and furthermore, that a cell-free supernatant of a culture of a nisin-producing Lactococcus lactis strain could be used instead of purified nisin, which reduced cost of use significantly. Finally, we tested the cell catalysts in milk, where lactose also was efficiently hydrolyzed. The method presented is natural and low-cost, and allows for production of clean-label and lactose-free dairy products without using commercial enzymes from recombinant microorganisms. KEY POINTS: • Nisin-permeabilized Streptococcus thermophilus cells can hydrolyze lactose efficiently. • A low-cost and more sustainable alternative to purified lactase enzymes. • Reduction of overall sugar content. • Clean-label production of lactose-free dairy products.