Prenylated proteins contain either a 15-carbon farnesyl or a 20-carbon geranylgeranyl isoprenoid covalently attached to cysteine residues at or near their C terminus. The cellular abundance of prenylated proteins, as well as the stability of the thioether bond, poses a metabolic challenge to cells. A lysosomal enzyme termed prenylcysteine lyase has been identified that degrades a variety of prenylcysteines. Prenylcysteine lyase is a FAD-dependent thioether oxidase that produces free cysteine, an isoprenoid aldehyde, and hydrogen peroxide as products of the reaction. Here we report initial studies of the kinetic mechanism and stereospecificity of this unusual enzyme. We utilized product and dead end inhibitors of prenylcysteine lyase to probe the kinetic mechanism of the multistep reaction. The results with these inhibitors, together with those of other experiments, suggest that the reaction catalyzed by prenylcysteine lyase proceeds through a sequential mechanism. The reaction catalyzed by the enzyme is stereospecific, in that the pro-S hydride of the farnesylcysteine is transferred to FAD to initiate the reaction. With (2R,1'S)-[1'-(2)H(1)]farnesylcysteine as a substrate, a primary deuterium isotope effect of 2 was observed on the steady state rate. However, the absence of an isotope effect on an observed pre-steady-state burst of hydrogen peroxide formation implicates a partially rate-determining proton transfer after a relatively fast C-H (C-D) bond cleavage step. Furthermore, no pre-steady-state burst of cysteine was observed. The finding that the rate of cysteine formation was within 2-fold of the steady-state k(cat) value indicates that cysteine production is one of the primary rate-limiting steps in the reaction. These results provide substantial new information on the catalytic mechanism of prenylcysteine lyase.