The unusual architecture of the enzyme (MsAcT) isolated from Mycobacterium smegmatis forms the mechanistic basis for favoring alcoholysis over hydrolysis in water. Unlike hydrolases that perform alcoholysis only under anhydrous conditions, MsAcT demonstrates alcoholysis in substantially aqueous media and, in the presence of hydrogen peroxide, has a perhydrolysis:hydrolysis ratio 50-fold greater than that of the best lipase tested. The crystal structures of the apoenzyme and an inhibitor-bound form have been determined to 1.5 A resolution. MsAcT is an octamer in the asymmetric unit and forms a tightly associated aggregate in solution. Relative to other structurally similar monomers, MsAcT contains several insertions that contribute to the oligomerization and greatly restrict the shape of the active site, thereby limiting its accessibility. These properties create an environment by which MsAcT can catalyze transesterification reactions in an aqueous medium and suggests how a serine hydrolase can be engineered to be an efficient acyltransferase.