Degradation of toxins by microorganisms is a promising approach for detoxification of agricultural products. Here, a bacterial strain, Sphingomonas S3-4, that has the ability to degrade the mycotoxin deoxynivalenol (DON) was isolated from wheat fields. Incubation of Fusarium-infected wheat grains with S3-4 completely eliminated DON. In S3-4 DON is catabolized into compounds with no detectable phytotoxicity, 3-oxo-DON and 3-epi-DON, via two sequential reactions. Comparative analysis of genome sequences from two DON-degrading strains, S3-4 and Devosia D17, and one non-DON-degrading strain, Sphingobium S26, combined with functional screening of a S3-4 genomic BAC library led to the discovery that a novel aldo/keto reductase superfamily member, AKR18A1, is responsible for oxidation of DON into 3-oxo-DON. DON-degrading activity is completely abolished in a mutant S3-4 strain where the AKR18A1 gene is disrupted. Recombinant AKR18A1 protein expressed in Escherichia coli catalyzed the reversible oxidation/reduction of DON at a wide range of pH values (7.5 to 11) and temperatures (10 to 50 °C). The S3-4 strain and recombinant AKR18A1 also catabolized zearalenone and the aldehydes glyoxal and methyglyoxal. The S3-4 strain and the AKR18A1 gene are promising agents for the control of Fusarium pathogens and detoxification of mycotoxins in plants and in food/feed products.