Improving enzyme stability is a highly desirable design step in generating enzymes able to function under extreme conditions, such as elevated temperatures, while having the additional benefit of being less susceptible to cleavage by proteases. For these reasons, many different approaches and techniques have been devised in constructing such proteins, but the results to date have been of mixed success. Here, we present a robust method involving the terminal truncation, random mutagenesis and fragmentation, recombination, elongation, and finally, selection at physiological temperatures, to generate an enzyme with improved stability. Three cycles of directed evolution comprising of random mutagenesis, DNA shuffling, and selection at 37 degrees C were used, using the bacterial enzyme TEM-1 beta-lactamase as a model protein to yield deletion mutants with in vivo ampicillin resistance levels comparable to wild-type (wt) enzyme. Kinetic studies demonstrate the selected mutant to have a significantly improved thermostability relative to its wt counterpart. Elongation of this mutant to the full-length gene resulted in a beta-lactamase variant with dramatically increased thermostability. This technique was so fruitful that the evolved enzyme retained its maximum catalytic activity even 20 degrees C above its wt parent protein optimum. Thus, structural perturbation by terminal truncation and subsequent compensation by directed evolution at physiological temperatures is a fast, efficient, and highly effective way to improve the thermostability of proteins without the need for selecting at elevated temperatures.