Alanine racemase (Alr) [EC 5.1.1.1] from Geobacillus stearothermophilus is a pyridoxal 5'-phosphate-dependent enzyme that catalyzes the first committed step in bacterial cell wall biosynthesis. It is converted to an aldolase upon replacement of Tyr265, which normally serves as a catalytic base in the racemase reaction, with alanine. The Y265A mutation increases catalytic efficiency for cleavage of beta-phenylserine to benzaldehyde and glycine by 2.3 x 105 fold as compared to the wild-type racemase, while racemase activity is greatly decreased. Additional mutagenesis suggests that His166 may act as the base that initiates the retroaldol reaction. The Y265A mutant is highly stereoselective for (2R,3S)-phenylserine, a d-amino acid, and does not process its enantiomer. This preference is consistent with the expected binding mode of substrate in the modified active site and supports the proposal that naturally occurring d-threonine aldolases and alanine racemases derive from a common ancestor.