An extracellular lipase catalyzing the synthesis of macrocyclic lactones in anhydrous organic solvents was purified to homogeneity from Pseudomonas nov. sp. 109, and characterized. The lipase showed a pI of 5.3 on isoelectric focusing and a Mr of 29,000 +/- 1,000 on sodium dodecyl sulfate-polyacrylamide gel electrophoresis. With respect to substrate specificity, optimum chain length for acyl moiety varied depending on the type of reaction catalyzed: C18 in monomer lactone formation, C11 or shorter in dimer lactone formation, and C8 in ester hydrolysis. The amino-terminal 19 amino acid residues of the purified lipase were determined as Ser-Thr-Tyr-Thr-Gln-Thr-Lys-Tyr-Pro-Ile-Val-Leu-Ala-His-Gly-Met-Leu-Gly- Phe, and the gene encoding the lipase was identified by hybridization to a synthetic 20-nucleotide probe, cloned, and sequenced. Nucleotide sequence analysis predicted a 311-amino acid open reading frame, a putative ribosome-binding site, and a 26-amino acid sequence at the amino terminus of the sequence that is not found in the mature protein. This 26-amino acid sequence has many of the characteristics common to known signal peptides. The lipase gene encoded a sequence of Val-Asn-Leu-Ile-Gly-His-Ser-His-Gly-Gly which is very well conserved among lipases, and showed 38-40% overall homology to the amino acid sequences of lipases from Pseudomonas fragie and Pseudomonas cepacia, but showed little homology to those of other lipases, suggesting that some structural features are required for catalyzing macrocyclic lactone synthesis in organic solvents and are restricted to lipases of the Pseudomonas origin.