A 3.6-kb fragment of Bacillus stearothermophilus BR388 chromosomal DNA that confers growth on limonene to Escherichia coli has been sequenced, revealing a single open reading frame encoding a single subunit limonene hydroxylase containing 444 amino acid residues. This enzyme proved capable of limonene hydroxylation to a mixture of carveol and perillyl alcohol as well as dehydrogenation of these products to carvone and perillyl aldehyde. Oxygen, FAD, and NADH were found to stimulate the hydroxylation reaction in cell extracts, and NAD(+) stimulated the dehydrogenase reaction. In two-phase bioconversions using viable E. roll cells overexpressing the limonene hydroxylase, perillyl alcohol and carvone were the principal products observed.