Nicotinic acid adenine dinucleotide phosphate (NAADP) is a novel metabolite of NADP that has now been established as a Ca2+ messenger in many cellular systems. Its synthesis is catalyzed by multifunctional enzymes, CD38 and ADP-ribosyl cyclase (cyclase). The degradation pathway for NAADP is unknown and no enzyme that can specifically hydrolyze it has yet been identified. Here we show that CD38 can, in fact, hydrolyze NAADP to ADP-ribose 2′-phosphate. This activity was low at neutrality but greatly increased at acidic pH. This novel pH dependence suggests that the hydrolysis is determined by acidic residues at the active site. X-ray crystallography of the complex of CD38 with one of its substrates, NMN, showed that the nicotinamide moiety was in close contact with Glu146 at 3.27 Å and Asp155 at 2.52Å. Changing Glu146 to uncharged Gly and Ala, and Asp 155 to Gln and Asn, by site-directed mutagenesis indeed eliminated the strong pH dependence. Changing Asp155 to Glu, in contrast, preserved the dependence. The specificity of the two acidic residues was further demonstrated by changing the adjacent Asp147 to Val, which had minimal effect on the pH dependence. Crystallography confirmed that Asp147 was situated and directed away from the bound substrate. Synthesis of NAADP catalyzed by CD38 is known to have strong preference for acidic pH, suggesting that Glu146 and Asp155 are also critical determinants. This was shown to be case by mutagensis. Likewise, using similar approaches, Glu98 of the cyclase, which is equivalent to Glu146 in CD38, was found to be responsible for controlling the pH dependence of NAADP synthesis by the cyclase. Based on these findings, a catalytic model is proposed.