The structural gene encoding the extracellular lipase of Aeromonas hydrophila MCC-2 was cloned and found to be expressed in Escherichia coli using its own promoter. When the cloned gene (lip) was expressed in E. coli minicells, an 80 kDa protein was identified. Subcellular fractionation of E. coli carrying the lip gene indicated that the Lip protein was mainly associated with the membrane fraction. Nucleotide sequence analysis revealed that the gene is 2253 bp long, coding for a 79-9 kDa protein with an estimated pl of 10.36. The deduced protein contains two putative signal peptide cleavage sites: one is a typical signal peptidase cleavage site and the other bears a strong resemblance to known lipoprotein leader sequences. Radioactivity from [3H]palmitate was incorporated into the Lip protein when expressed in E. coli. The deduced protein contains a sequence of VHFLGHSLGA which is very well conserved among lipases. It shows 67% and 65% overall identity to the amino acid sequences of lipase from A. hydrophila strains H3 and JMP636, respectively, but shows little homology to those of other lipases. The Lip protein was purified to homogeneity from both A. hydrophila and recombinant E. coli. In hydrolysis of p-nitrophenyl esters and triacylglycerols, using purified enzyme, the optimum chain lengths for the acyl moiety on the substrate were C10 to C12 for ester hydrolysis and C8 to C10 for triacylglycerol hydrolysis.