A beta-glycosidase with strong transglycosylation activity was solubilized from the cell wall fraction of Rhodotorula minuta IFO879 by a cell wall lytic enzyme, Usukizyme, and was purified to homogeneity with a yield of 53% by DEAE-Toyopearl, Butyl-Toyopearl, p-aminobenzyl 1-thio-beta-D-galactopyranoside agarose and Con A agarose column chromatography. The native enzyme is a glycoprotein with a molecular weight of 144,000 and is composed of two subunits with molecular weights of about 72,000. Its isoelectric point was estimated to be 4.8 by polyacrylamide gel electrofocusing. The optimal temperature for enzyme activity is 70 degrees C. It is stable at temperatures up to 55 degrees C for 1 h. The optimal pH range is 4.7 to 5.2, and stability was maintained between pH 3.0 and 7.0. The purified beta-glycosidase was found to be active toward beta-D-fucopyranoside and alpha-L-arabinopyranoside as well as beta-D-galactopyranoside and beta-D-glucopyranoside. The K-m values measured for lactose, cellobiose, o-nitrophenyl-beta-D-galactopyranoside and p-nitrophenyl-beta-D-glucopyranoside are 2.4, 11.1, 6.2 and 1.2 mM, respectively, and V-max values for these substrates are 63.6, 270.6, 34.4 and 20.7 mu mol/min per mg protein, respectively. In addition, this enzyme exhibits strong transglycosylation activities, producing 78 mg/ml galacto-oligosaccharide or 68 mg/ml gluco-oligosaccharide from 200 mg/ml lactose or cellobiose, respectively.