Gram-negative bacteria including Escherichia coli, Salmonella typhimurium, and Pseudomonas aeruginosa can modify the structure of lipid A in their outer membrane with 4-amino-4-deoxy-l-arabinose (Ara4N). Such modification results in resistance to cationic antimicrobial peptides of the innate immune system and antibiotics such as polymyxin. ArnA is a key enzyme in the lipid A modification pathway, and its deletion abolishes both the Ara4N-lipid A modification and polymyxin resistance. ArnA is a bifunctional enzyme. It can catalyze (i) the NAD(+)-dependent decarboxylation of UDP-glucuronic acid to UDP-4-keto-arabinose and (ii) the N-10-formyltetrahydrofolate-dependent formylation of UDP-4-amino-4-deoxy-l-arabinose. We show that the NAD(+)-dependent decarboxylating activity is contained in the 360 amino acid C-terminal domain of ArnA. This domain is separable from the N-terminal fragment, and its activity is identical to that of the full-length enzyme. The crystal structure of the ArnA decarboxylase domain from E. coli is presented here. The structure confirms that the enzyme belongs to the short-chain dehydrogenase/reductase (SDR) family. On the basis of sequence and structure comparisons of the ArnA decarboxylase domain with other members of the short-chain dehydrogenase/reductase (SDR) family, we propose a binding model for NAD(+) and UDP-glucuronic acid and the involvement of residues T(432), Y(463), K(467), R(619), and S(433) in the mechanism of NAD(+)-dependent oxidation of the 4''-OH of the UDP-glucuronic acid and decarboxylation of the UDP-4-keto-glucuronic acid intermediate.