A novel flavoprotein monooxygenase, 4-hydroxybenzoate 1-hydroxylase (decarboxylating), from Candida parapsilosis CBS604 was purified to apparent homogeneity. The enzyme is induced when the yeast is grown on either 4-hydroxybenzoate, 2,4-dihydroxybenzoate, or 3,4-dihydroxybenzoate as the sole carbon source. The purified monooxygenase is a monomer of about 50 kDa containing flavin adenine dinucleotide as weakly bound cofactor. 4-Hydroxybenzoate 1-hydroxylase from C. parapsilosis catalyzes the oxidative decarboxylation of a wide range of 4-hydroxybenzoate derivatives with the stoichiometric consumption of NAD(P)H and oxygen. Optimal catalysis is reached at pH 8, with NADH being the preferred electron donor. By using (18)O2, it was confirmed that the oxygen atom inserted into the product 1,4-dihydroxybenzene is derived from molecular oxygen. 19F nuclear magnetic resonance spectroscopy revealed that the enzyme catalyzes the conversion of fluorinated 4-hydroxybenzoates to the corresponding hydroquinones. The activity of the enzyme is strongly inhibited by 3,5-dichloro-4-hydroxybenzoate, 4-hydroxy-3,5-dinitrobenzoate, and 4-hydroxyisophthalate, which are competitors with the aromatic substrate. The same type of inhibition is exhibited by chloride ions. Molecular orbital calculations show that upon deprotonation of the 4-hydroxy group, nucleophilic reactivity is located in all substrates at the C-1 position. This, and the fact that the enzyme is highly active with tetrafluoro-4-hydroxybenzoate and 4-hydroxy-3-nitrobenzoate, suggests that the phenolate forms of the substrates play an important role in catalysis. Based on the substrate specificity, a mechanism is proposed for the flavin-mediated oxidative decarboxylation of 4-hydroxybenzoate.