The structure and biochemical function of the hot dog-fold thioesterase PaaI operative in the aerobic phenylacetate degradation pathway are examined. PaaI showed modest activity with phenylacetyl-coenzyme A, suggestive of a role in coenzyme A release from this pathway intermediate in the event of limiting downstream pathway enzymes. Minimal activity was observed with aliphatic acyl-coenzyme A thioesters, which ruled out PaaI function in the lower phenylacetate pathway. PaaI was most active with ring-hydroxylated phenylacetyl-coenzyme A thioesters. The x-ray crystal structure of the Escherichia coli thioesterase is reported and analyzed to define the structural basis of substrate recognition and catalysis. The contributions of catalytic and substrate binding residues, thus, identified were examined through steady-state kinetic analysis of site-directed mutant proteins.