2-Hydroxybiphenyl 3-monooxygenase (EC 1.14.13.44) from Pseudomonas azelaica HBP1 is an FAD-dependent aromatic hydroxylase that catalyzes the conversion of 2-hydroxybiphenyl to 2, 3-dihydroxybiphenyl in the presence of NADH and oxygen. The catalytic mechanism of this three-substrate reaction was investigated at 7 degrees C by stopped-flow absorption spectroscopy. Various individual steps associated with catalysis were readily observed at pH 7.5, the optimum pH for enzyme turnover. Anaerobic reduction of the free enzyme by NADH is a biphasic process, most likely reflecting the presence of two distinct enzyme forms. Binding of 2-hydroxybiphenyl stimulated the rate of enzyme reduction by NADH by 2 orders of magnitude. The anaerobic reduction of the enzyme-substrate complex involved the formation of a transient charge-transfer complex between the reduced flavin and NAD(+). A similar transient intermediate was formed when the enzyme was complexed with the substrate analog 2-sec-butylphenol or with the non-substrate effector 2,3-dihydroxybiphenyl. Excess NAD(+) strongly stabilized the charge-transfer complexes but did not give rise to the appearance of any intermediate during the reduction of uncomplexed enzyme. Free reduced 2-hydroxybiphenyl 3-monooxygenase reacted rapidly with oxygen to form oxidized enzyme with no appearance of intermediates during this reaction. In the presence of 2-hydroxybiphenyl, two consecutive spectral intermediates were observed which were assigned to the flavin C(4a)-hydroperoxide and the flavin C(4a)-hydroxide, respectively. No oxygenated flavin intermediates were observed when the enzyme was in complex with 2, 3-dihydroxybiphenyl. Monovalent anions retarded the dehydration of the flavin C(4a)-hydroxide without stabilization of additional intermediates. The kinetic data for 2-hydroxybiphenyl 3-monooxygenase are consistent with a ternary complex mechanism in which the aromatic substrate has strict control in both the reductive and oxidative half-reaction in a way that reactions leading to substrate hydroxylation are favored over those leading to the futile formation of hydrogen peroxide. NAD(+) release from the reduced enzyme-substrate complex is the slowest step in catalysis.