Xylose reductase has been purified to apparent homogeneity from cell extracts of the fungus Cryptococcus flavus grown on D-xylose as carbon source. The enzyme, the first of its kind from the phylum Basidiomycota, is a functional dimer composed of identical subunits of 35.3 kDa mass and requires NADP(H) for activity. Steady-state kinetic parameters for the reaction, D-xylose + NADPH + H(+)<--> xylitol + NADP(+), have been obtained at pH 7.0 and 25 degrees C. The catalytic efficiency for reduction of D-xylose is 150 times that for oxidation of xylitol. This and the 3-fold tighter binding of NADPH than NADP(+) indicate that the enzyme is primed for unidirectional metabolic function in microbial physiology. Kinetic analysis of enzymic reduction of aldehyde substrates differing in hydrophobic and hydrogen bonding capabilities with binary enzyme-NADPH complex has been used to characterize the substrate-binding pocket of xylose reductase. Total transition state stabilization energy derived from bonding with non-reacting sugar hydroxyls is approximately 15 kJ/mol, with a major contribution of 5-8 kJ/mol made by interactions with the C-2(R) hydroxy group. The aldehyde binding site is approximately 1.2 times more hydrophobic than n-octanol and can accommodate linear alkyl chains of <or=6 carbons. Hydrophobic interactions provide a total binding energy of approximately 10 kJ/mol. Specificity for the aldehyde substrate is achieved through large decreases in apparent K(m) ( approximately 100-fold) and smaller but significant increases in turnover number ( approximately 5-fold). We observed up to 250-fold preference of xylose reductase for reaction with pyridine carbaldehydes, 4-nitro-benzaldehyde, and alpha-oxo-aldehydes over reaction with D-xylose, perhaps reflecting a secondary role of this enzyme in detoxication metabolism of reactive endogenous aldehydes and compounds of xenobiotic origin.