A partially purified preparation of an alpha-amino acid ester hydrolase was obtained from Acetobacter turbidans A.T.C.C. 9325, which catalyses synthesis of 7-(d-alpha-amino-alpha-phenylacetamido)-3-cephem-3-methyl-4- carboxylic acid (cephalexin) from methyl d-alpha-aminophenylacetate and 7-amino-3-deacetoxycephalosporanic acid. The enzyme preparation catalysed both cephalosprin synthesis from 7-amino-3-deacetoxycephalosporanic acid and suitable amino acid esters (e.g. methyl d-alpha-aminophenylacetate, l-cysteine methyl ester, glycine ethyl ester, d-alanine methyl ester, methyl dl-alpha-aminoiso-butyrate, l-serine methyl ester, d-leucine methyl ester, l-methionine methyl ester) and the hydrolysis of such esters. The substrate specificity of the enzyme preparation for the hydrolysis closely paralleled the acyl-donor specificity for cephalosporin synthesis, even to the reaction rates. Only alpha-amino acid derivatives could act as acyl donors. The hydrogen atom on the alpha-carbon atom was not always required by acyl donors. The hydrolysis rate was markedly diminished by adding 7-amino-3-deacetoxycephalosporanic acid to reaction mixtures, but no effect on the total reaction rate (the hydrolysis rate plus synthesis rate) was observed with various concentrations of 7-amino-3-deacetoxycephalosporanic acid. Both the hydrolytic and the synthetic activities of the enzyme preparation were inhibited by high concentrations of some acyl donors (e.g. methyl d-alpha-aminophenylacetate, ethyl d-alpha-aminophenylacetate). The enzyme preparation hydrolysed alpha-amino acid esters much more easily than alpha-amino acid derivatives with an acid-amide bond.