In this study, the occurrence and chromosomal clustering of genes encoding C(1) transfer reactions linked to tetrahydromethanopterin (H(4)MPT) were analyzed in a variety of proteobacteria and in representatives of the Planctomycetes via genomic analysis or via partial sequencing by cosmid walking. Although a tendency for clustering was found common for the genes of interest, significant variations in gene order and the degree of clustering were uncovered both between and within different groups of Proteobacteria and between Proteobacteria and Planctomycetes. Phylogenetic analyses suggested that the evolution of genes encoding H(4)MPT-linked reactions in Proteobacteria involved lateral transfers within Proteobacteria and possibly between Proteobacteria and other phyla. Gene cluster comparisons revealed a number of novel genes potentially involved in the C(1) transfer reactions, and these were analyzed by mutation and expression analyses. Four genes, a homolog of pabB, and three genes conserved between methanogenic Archaea and Bacteria possessing H(4)MPT-linked functions, orfY, orf1, and afpA were shown to be involved in formaldehyde oxidation/detoxification, as judged by specific mutant phenotypes. In particular, pabB contributes to the biosynthesis of para-aminobenzoic acid, a precursor of both tetrahydrofolate and H(4)MPT, and afpA apparently encodes a novel dihydromethanopterin reductase, based on mutant complementation experiments.