Many serine hydrolases catalyze perhydrolysis, the reversible formation of peracids from carboxylic acids and hydrogen peroxide. Recently, we showed that a single amino acid substitution in the alcohol binding pocket, L29P, in Pseudomonas fluorescens (SIK WI) aryl esterase (PFE) increased the specificity constant of PFE for peracetic acid formation > 100-fold [Bernhardt et al. (2005) Angew. Chem., Int. Ed. 44, 2742]. In this paper, we extend this work to address the three following questions. First, what is the molecular basis of the increase in perhydrolysis activity? We previously proposed that the L29P substitution creates a hydrogen bond between the enzyme and hydrogen peroxide in the transition state. Here we report two X-ray structures of L29P PFE that support this proposal. Both structures show a main chain carbonyl oxygen closer to the active site serine as expected. One structure further shows acetate in the active site in an orientation consistent with reaction by an acyl-enzyme mechanism. We also detected an acyl-enzyme intermediate in the hydrolysis of ε-caprolactone by mass spectrometry. Second, can we further increase perhydrolysis activity? We discovered that the reverse reaction, hydrolysis of peracetic acid to acetic acid and hydrogen peroxide, occurs at nearly the diffusion limited rate. Since the reverse reaction cannot increase further, neither can the forward reaction. Consistent with this prediction, two variants with additional amino acid substitutions showed 2-fold higher kcat, but Km also increased so the specificity constant, kcat/Km, remained similar. Third, how does the L29P substitution change the esterase activity? Ester hydrolysis decreased for most esters (75-fold for ethyl acetate) but not for methyl esters. In contrast, L29P PFE catalyzed hydrolysis of e-caprolactone five times more efficiently than wild-type PFE. Molecular modeling suggests that moving the carbonyl group closer to the active site blocks access for larger alcohol moieties but binds ε-caprolactone more tightly. These results are consistent with the natural function of perhydrolases being either hydrolysis of peroxycarboxylic acids or hydrolysis of lactones.