Acyl transfer is a key reaction in biosynthesis, including synthesis of antibiotics and polyesters. Although researchers have long recognized the similar protein fold and catalytic machinery in acyltransferases and hydrolases, the molecular basis for the different reactivity has been a long-standing mystery. By comparison of X-ray structures, we identified a different oxyanion-loop orientation in the active site. In esterases/lipases a carbonyl oxygen points toward the active site, whereas in acyltransferases a NH of the main-chain amide points toward the active site. Amino acid sequence comparisons alone cannot identify such a difference in the main-chain orientation. To identify how this difference might change the reaction mechanism, we solved the X-ray crystal structure of Pseudomonas fluorescens esterase containing a sulfonate transition-state analogue bound to the active-site serine. This structure mimics the transition state for the attack of water on the acyl-enzyme and shows a bridging water molecule between the carbonyl oxygen mentioned above and the sulfonyl oxygen that mimics the attacking water. A possible mechanistic role for this bridging water molecule is to position and activate the attacking water molecule in hydrolases, but to deactivate the attacking water molecule in acyl transferases. All in the loop: A structure comparison of hydrolases and acyl transferases revealed a different conformation of the main chain in the oxyanion loop. Hydrolases point a C=O, whereas acytransferase point a NH, toward the active site. An X-ray structure of a hydrolase containing a sulfonate transition-state analogue show how this loop interacts with the attacking water.