The widespread, long sought-after bacterial aerobic phenylalanine/phenylacetate catabolic pathway has recently been elucidated. It proceeds via coenzyme A (CoA) thioesters and involves the epoxidation of the aromatic ring of phenylacetyl-CoA, subsequent isomerization to an uncommon seven-membered C-O-heterocycle (oxepin-CoA), and non-oxygenolytic ring cleavage. Here we characterize the hydrolytic oxepin-CoA ring cleavage catalyzed by the bifunctional fusion protein PaaZ. The enzyme consists of a C-terminal (R)-specific enoyl-CoA hydratase domain (formerly MaoC) that cleaves the ring and produces a highly reactive aldehyde and an N-terminal NADP(+)-dependent aldehyde dehydrogenase domain that oxidizes the aldehyde to 3-oxo-5,6-dehydrosuberyl-CoA. In many phenylacetate-utilizing bacteria, the genes for the pathway exist in a cluster that contains an NAD(+)-dependent aldehyde dehydrogenase in place of PaaZ, whereas the aldehyde-producing hydratase is encoded outside of the cluster. If not oxidized immediately, the reactive aldehyde condenses intramolecularly to a stable cyclic derivative that is largely prevented by PaaZ fusion in vivo. Interestingly, the derivative likely serves as the starting material for the synthesis of antibiotics (e.g. tropodithietic acid) and other tropone/tropolone related compounds as well as for ω-cycloheptyl fatty acids. Apparently, bacteria made a virtue out of the necessity of disposing the dead-end product with ring hydrolysis as a metabolic branching point.