A cyclodextrin glucanotransferase (CGTase) gene of Bacillus ohbensis was cloned in Escherichia coli and the nucleotide sequence was determined. A single open reading frame (2112 bp) with a TTG codon as an initiator was identified that encodes a typical signal peptide of 29 amino acids followed by the mature enzyme (675 amino acids), of which the partial amino acid sequences of the N-terminal region and some lysyl-endopeptidase fragments were determined by Edman degradation. The CGTase gene was expressed in E. coli under control of the lac promoter only when the upstream region containing a long inverted repeat structure (located at -108 to -67 bp from the initiation codon) was deleted. Substitution of an ATG codon for the initiation TTG triplet doubled the expression of the CGTase gene in E. coli. Enzyme preparations purified from the culture supernatant of B. ohbensis and from the periplasmic fraction of the E. coli transformant exhibited the same molecular weight (Mr) and enzymatic properties as follows: Mr, 80,000; optimum pH for activity, 5.0 (and a suboptimum at 10.0); stability between pH 6.5 and 10.0; optimum temperature for activity, 55 degrees C; and stability below 45 degrees C. The yields of the products from starch as the substrate were 25% for beta- and 5% for gamma-cyclodextrin.