Abstract For a composite catalyst, consisting of active catalyst beads distributed uniformly within a less active but more porous matrix of a diluent, the effectiveness factor exhibits a maximum as a function of the amount of active catalyst. Conditions have been established for the existence of an optimum dilution, and expressions have been developed for its estimation for an isothermal first order reaction. A nonisothermal analysis of the same problem, for an exothermic reaction, indicates a shift in the optimum catalyst dilution towards higher dilutions. The analysis has been extended to the catalytic cracking process, where such catalysts are used. In this process large hydrocarbon molecules decompose to an intermediate product ( A → B ) in the diluent (silica-alumina), while the subsequent reactions are carried out in the active microparticles (zeolite). Using for the sake of simplicity first order kinetics, the analysis demonstrates the occurrence of a maximum in the rate of production of component C as a function of the amount of the active catalyst. Finally, it is shown in the paper that dilution can also affect the selectivity of a catalyti