A novel phenol hydroxylase (PheA) that catalyzes the first step in the degradation of phenol in Bacillus thermoglucosidasius A7 is described. The two-protein system, encoded by the pheA1 and pheA2 genes, consists of an oxygenase (PheA1) and a flavin reductase (PheA2) and is optimally active at 55 degrees C. PheA1 and PheA2 were separately expressed in recombinant Escherichia coli BL21(DE3) pLysS cells and purified to apparent homogeneity. The pheA1 gene codes for a protein of 504 amino acids with a predicted mass of 57.2 kDa. PheA1 exists as a homodimer in solution and has no enzyme activity on its own. PheA1 catalyzes the efficient ortho-hydroxylation of phenol to catechol when supplemented with PheA2 and FAD/NADH. The hydroxylase activity is strictly FAD-dependent, and neither FMN nor riboflavin can replace FAD in this reaction. The pheA2 gene codes for a protein of 161 amino acids with a predicted mass of 17.7 kDa. PheA2 is also a homodimer, with each subunit containing a highly fluorescent FAD prosthetic group. PheA2 catalyzes the NADH-dependent reduction of free flavins according to a Ping Pong Bi Bi mechanism. PheA2 is structurally related to ferric reductase, an NAD(P)H-dependent reductase from the hyperthermophilic Archaea Archaeoglobus fulgidus that catalyzes the flavin-mediated reduction of iron complexes. However, PheA2 displays no ferric reductase activity and is the first member of a newly recognized family of short-chain flavin reductases that use FAD both as a substrate and as a prosthetic group.