Hydroxyisourate hydrolase is a recently discovered enzyme that participates in the ureide pathway in soybeans. Its role is to catalyze the hydrolysis of 5-hydroxyisourate, the product of the urate oxidase reaction. There is extensive sequence homology between hydroxyisourate hydrolase and retaining glycosidases; in particular, the conserved active site glutamate residues found in retaining glycosidases are present in hydroxyisourate hydrolase as Glu 199 and Glu 408. However, experimental investigation of their roles, as well as the catalytic mechanism of the enzyme, have been precluded by the instability of 5-hydroxyisourate. Here, we report that diaminouracil serves as a slow, alternative substrate and can be used to investigate catalysis by hydroxyisourate hydrolase. The activity of the E199A protein was reduced 400-fold relative to wild-type, and no activity could be detected with the E408A mutant. Steady-state kinetic studies of the wild-type protein revealed that the pH-dependence of V(max) and V/K describe bell-shaped curves, consistent with the hypothesis that catalysis requires two ionizable groups in opposite protonation states. Addition of 100 mM azide accelerated the reaction catalyzed by the wild-type enzyme 8-fold and the E199A mutant 20-fold but had no effect on the E408A mutant. These data suggest that Glu 408 acts as a nucleophile toward the substrate forming a covalent anhydride intermediate, and Glu 199 facilitates formation of the intermediate by serving as a general acid and then activates water for hydrolysis of the intermediate. Thus, the mechanism of hydroxyisourate hydrolase is strikingly similar to that of retaining glycosidases, even though it catalyzes hydrolysis of an amide bond.