An isolated bacterium, identified as a new Sphingomonas species, was demonstrated to contain a novel enzymatic pathway which acted on microcystin LR, the most common cyanobacterial cyclic peptide toxin. Degradation of microcystin LR was mediated by at least three intracellular hydrolytic enzymes. The use of classic protease inhibitors allowed (i) the classification of these enzymes into general protease families and (ii) the in vitro accumulation of otherwise transient microcystin LR degradation products. The initial site of hydrolytic cleavage of the parent cyclic peptide by an enzyme that we designate microcystinase is at the 3-amino-9-methoxy-2,6,8-trimethyl-10-phenyl-deca-4,6-dienoic acid (Adda)-Arg peptide bond. Two intermediates of microcystin LR enzymatic degradation have been identified; one is linearized (acyclo-) microcystin LR, NH2-Adda-Glu(iso)-methyldehydroalanine-Ala-Leu-beta-methylas partate-Arg-OH, and the other is the tetrapeptide NH2-Adda-Glu(iso)-methyldehydroalanine-Ala-OH. The intermediate degradation products were less active than the parent cyclic peptide; the observed 50% inhibitory concentrations for crude chicken brain protein phosphatase were 0.6 nM for microcystin LR, 95 nM for linear LR, and 12 nM for the tetrapeptide. These linear peptides were nontoxic to mice at doses up to 250 micrograms/kg. Ring opening of the potent hepatotoxin microcystin LR by bacterial microcystinase effectively renders the compound nontoxic by dramatically reducing the interaction with the target protein phosphatase.