The C-terminal thioesterase domain of the nonribosomal peptide synthetase producing the lipopetide surfactin (Srf TE) retains autonomous ability to generate the cyclic peptidolactone skeleton of surfactin when provided with a soluble beta-hydroxy-butyryl-heptapeptidyl thioester substrate. Utilizing the recently solved crystal structure [Bruner, S. D., et al. (2002) Structure 10, 301-310], the active-site nucleophile, Ser80, was changed to Cys, and the other members of the catalytic triad, Asp107 and His207, were changed to Ala, with the resulting mutants lacking detectable activity. Two cationic side chains in the active site, Lys111 and Arg120, were changed to Ala, causing an increased partitioning of the product to hydrolysis, as did a P26G mutant, mimicking the behavior of lipases. To evaluate recognition elements in substrates used by Srf TE, alterations to the fatty acyl group, the heptapeptide, and the thioester leaving group were made, and the resulting substrates were characterized for kinetic competency and flux of product to cyclization or hydrolysis. Alterations that could be accepted for cyclization were identified in all three parts of the substrate, although tolerance limits for changes varied. In addition, cocrystal structures of Srf TE with dipeptidyl boronate inhibitors were solved, illustrating the critical binding determinants of the substrate. On the basis of the structures and biochemical data, the cyclizing conformation of the surfactin peptide was modeled into the enzyme active site.