Abstract A novel lipase (lactonizing lipase: lipL ) from Pseudomonas sp. 109 can catalyze synthesis of macrocyclic lactones in anhydrous organic solvents by transesterification. A gene situated immediately downstream from lipL was found to be essential for production of the functional lipase, and was denoted as limL ( li pase m odulator). Nucleotide sequence analysis of the limL region revealed a 340-amino acid open reading frame ( M r =37,658) 49 bp downstream from lipL . In the non-coding region between lipL and limL was situated a 32-base strong inverted repeat, and a putative ribosome binding site was present at 14 bases upstream from the limL initiator methionine. The deduced amino-acid sequence of LimL exhibited 29% overall homology with that of the lipase-modulator protein (LimA) of Pseudomonas cepacia . Although the homology itself was low, hydrophobicity/hydrophilicity plots of the two modulator proteins showed that the two proteins shared a similar hydropathy pattern, i.e. , the amino-terminus region is highly hydrophobic and the carboxyl-terminus region is strongly hydrophilic, suggesting that the two modulator proteins may activate corresponding lipase by similar functions. When lipL and limL were cloned separately in compatible plasmids, functional lipase was produced only in E. coli hosts harboring both the plasmids, indicating that limL can act in trans toward lipL .