The ubiquitous threat of Escherichia coli (E. coli) O157:H7 as an enterohemorrhagic pathogen to humans has challenged scientists worldwide to develop a biosensor that would accurately and efficiently detect the bacteria in the environment. This research involved modifications made to the liposome-based RNA biosensor developed in Baeumner et al., 2003. The goal was to investigate the effect of alcohols on the lateral-flow assay with the ultimate objective of developing a silica-coated magnetic bead biosensor based on integrated RNA isolation and detection. Both isolation and detection are carried out in the presence of 40 % ethanol, which immobilizes RNA onto silica. Detection is done through hybridization between the target RNA, reporter probe and dye-encapsulating liposome. If successful, this biosensor would be able to isolate E. coli O157:H7 mRNA for the heat shock gene and detect for viable bacteria in one step. The project was thus divided into two segments: The effect of ethanol on the lateral-flow biosensor assay was first investigated, after which the principle of bead assay was studied. Interestingly, it was found that 33 % ethanol in the hybridization buffer and 20 % ethanol in the running buffer created conditions in the lateral-flow assay that increased the overall signal to noise ratio from 1.46 to 3.66, or 2.5 times, when 50 fmol target sequence was used. Further investigations with other target analytes and over a broader range of target concentrations are needed, and will likely lead to an improved standard lateral-flow assay with significantly lowered limits of detection. Secondly, the principle of the integrated RNA isolation and detection bead-assay was proven, and the amount of background RNA and silica-coated magnetic beads optimized. However, the signals obtained were affected negatively by very high background noise and high standard deviations. A great deal of research into this type of assay is still needed in order to transform it into a viable assay.