Pathogenic gram-negative bacteria can modify the lipid A portion of their lipopolysaccharide in response to environmental stimuli. 3-O-deacylation of lipid A by the outer membrane enzyme PagL modulates signaling through Toll-like receptor 4, leading to a reduced host immune response. We found that PagL is widely disseminated among gram-negative bacteria. Only four residues are conserved: a Ser, His, Phe, and Asn residue. Here, we describe the crystal structure of PagL from Pseudomonas aeruginosa to 2.0-A resolution. It consists of an eight-stranded beta-barrel with the axis tilted by approximately 30 degrees with respect to the lipid bilayer. The structure reveals that PagL contains an active site with a Ser-His-Glu catalytic triad and an oxyanion hole that comprises the conserved Asn. The importance of active site residues was confirmed in mutagenesis studies. Although PagL is most likely active as a monomer, its active site architecture shows high resemblance to that of the dimeric 12-stranded outer membrane phospholipase A. Modeling of the substrate lipid X onto the active site reveals that the 3-O-acyl chain is accommodated in a hydrophobic groove perpendicular to the membrane plane. In addition, an aspartate makes a hydrogen bond with the hydroxyl group of the 3-O-acyl chain, probably providing specificity of PagL toward lipid A.