Eukaryotic sulfatases share an unusual posttranslational protein modification, which converts a cysteine into alpha-formylglycine. The alpha-formylglycine is essential for the catalytic activity. Klebsiella pneumoniae expresses an inducible arylsulfatase for which the DNA predicts a serine at the position occupied by the alpha-formylglycine residue in eukaryotic sulfatases. Structural analysis showed that the majority of the arylsulfatase polypeptides from K. pneumoniae carries the alpha-formylglycine, whereas the remaining arylsulfatase polypeptides contain the predicted serine residue. This demonstrates the evolutionary conservation between prokaryotes and eukaryotes of this novel protein modification that so far has been found only in sulfatases. alpha-Formylglycine in Klebsiella is generated from a serine and not from a cysteine as in eukaryotes.