A variety of microorganisms have the ability to use phosphonic acids as sole sources of phosphorus. Here, a novel pathway for degradation of 2-aminoethylphosphonate in the bacterium Sinorhizobium meliloti 1021 is proposed based on the analysis of the genome sequence. Gene deletion experiments confirmed the involvement of the locus containing phnW, phnA, and phnY genes in the conversion of 2-aminoethylphosphonate to inorganic phosphate. Biochemical studies of the recombinant PhnY and PhnA proteins verified their roles as phosphonoacetaldehyde dehydrogenase and phosphonoacetate hydrolase, respectively. This pathway is likely not limited to S. meliloti as suggested by the presence of homologous gene clusters in other bacterial genomes.