Screening of a gene library from Paenibacillus sp. PBS-2 generated in Escherichia coli led to the identification of a clone with lipolytic activity. Sequence analysis showed an open reading frame encoding a polypeptide of 378 amino acid residues with a predicted molecular mass of 42 kDa. The esterase displayed 69% and 42% identity with the putative β-lactamases from Paenibacillus sp. JDR-2 and Clostridium sp. BNL1100, respectively. The esterase contained a Serx- x-Lys motif that is conserved among all β-lactamases found to date. The protein PBS-2 was produced in both soluble and insoluble forms when E. coli cells harboring the gene were cultured at 18°C. The enzyme is a serine protein and was active against p-nitrophenyl esters of C2, C4, C8, and C10. The optimum pH and temperature for enzyme activity were pH 9.0 and 30°C, respectively. Relative activity of 55% remained at up to 5°C with an activation energy of 5.84 kcal/mol, which indicates that the enzyme is cold-adapted. Enzyme activity was inhibited by Cd(2+), Cu(2+), and Hg(2+) ions. As expected for a serine esterase, activity was inhibited by phenylmethylsulfonyl fluoride. The enzyme was remarkably active and stable in the presence of commercial detergents and organic solvents. This cold-adapted esterase has potential as a biocatalyst and detergent additive for use at low temperatures.