The exocellulase E3 gene was cloned on a 7.1 kb NotI fragment from Thermomonospora fusca genomic DNA into Escherichia coli and expressed in Streptomyces lividans. The E3 gene was sequenced and encoded a 596 residue peptide. The molecular masses of the native and cloned E3s were determined by mass spectrometry, and the value for E. coli E3, 59,797 Da, agreed well with that predicted from the DNA sequence, 59,646 Da. The value of 61,200 Da for T. fusca E3 is consistent with E3 being a glycoprotein. E3 is thermostable, retaining full activity after 16 h at 55 degrees C. It also has a broad pH optimum around 7-8, retaining 90% of its maximal activity between pH 6 and 10. The cloned E3s were identical to the native enzyme in their activity, cellulose binding, and thermostability. Papain digestion produced a 45.7 kDa catalytic domain with 77% of the native activity on amorphous cellulose and 33% on crystalline cellulose. E3 belongs to cellulase family B and retains the residues that have been identified to be crucial for catalytic activity in Trichoderma reesei cellobiohydrolase II and T. fusca E2. The E3 gene contains a 14 bp inverted repeat regulatory sequence 212 bp before the translational start codon instead of the 30-70 bp found for the other T. fusca cellulase genes. An additional copy of this sequence with one base changed is 314 bp before the translational start codon. The transcriptional start site of the E3 gene was shown to be between these two inverted repeats.