Gamma-glutamyltranspeptidase (GGT) is a heterodimic enzyme that is generated from the precursor protein through posttranslational processing and catalyzes the hydrolysis of gamma-glutamyl bonds in gamma-glutamyl compounds such as glutathione and/or the transfer of the gamma-glutamyl group to other amino acids and peptides. We have determined the crystal structure of GGT from Escherichia coli K-12 at 1.95 A resolution. GGT has a stacked alphabetabetaalpha fold comprising the large and small subunits, similar to the folds seen in members of the N-terminal nucleophile hydrolase superfamily. The active site Thr-391, the N-terminal residue of the small subunit, is located in the groove, from which the pocket for gamma-glutamyl moiety binding follows. We have further determined the structure of the gamma-glutamyl-enzyme intermediate trapped by flash cooling the GGT crystal soaked in glutathione solution and the structure of GGT in complex with l-glutamate. These structures revealed how the gamma-glutamyl moiety and l-glutamate are recognized by the enzyme. A water molecule was seen on the carbonyl carbon of the gamma-glutamyl-Thr-391 Ogamma bond in the intermediate that is to be hydrolyzed. Notably the residues essential for GGT activity (Arg-114, Asp-433, Ser-462, and Ser-463 in E. coli GGT) shown by site-directed mutagenesis of human GGT are all involved in the binding of the gamma-glutamyl moiety. The structure of E. coli GGT presented here, together with sequence alignment of GGTs, may be applicable to interpret the biochemical and genetic data of other GGTs.