Escherichia coli thioesterase/protease I (TEP-I) belongs to a new subclass of lipolytic enzymes of the serine hydrolase superfamily. Here we report the first direct NMR observation of the formation of the Michaelis complex (MC) between TEP-I and diethyl p-nitrophenyl phosphate (DENP), an active site directed inhibitor of serine protease, and its subsequent conversion to the tetrahedral complex (TC). NMR, ESI-MS, and kinetic data showed that DENP binds to TEP-I in a two-step process, a fast formation of MC followed by a slow conversion to TC. NMR chemical shift perturbation further revealed that perturbations were confined mainly to four conserved segments comprising the active site. Comparable magnitudes of chemical shift perturbations were detected in both steps. The largest chemical shift perturbation occurred around the catalytic Ser(10). In MC, the conformation of the mobile Ser(10) was stabilized, and its amide resonance became observable. From the large chemical shift perturbation upon conversion from MC to TC, we propose that the amide protons of Ser(10) and Gly(44) serve as the oxyanion hole proton donors that stabilize the tetrahedral adduct. The pattern of residues perturbed in both steps suggests a sequential, stepwise structural change upon binding of DENP. The present study also demonstrates the important catalytic roles of conserved residues in the SGNH family of proteins.