A novel enzymatic reaction involved in the metabolism of aliphatic epoxides by Xanthobacter strain Py2 is described, Cell extracts catalyzed the CO2-dependent carboxylation of propylene oxide (epoxypropane) to form acetoacetate and beta-hydroxybutyrate. The time courses of acetoacetate and beta-hydroxybutyrate formation indicate that acetoacetate is the primary product of propylene oxide carboxylation and that beta-hydroxybutyrate is a secondary product formed by the reduction of acetoacetate, Analogous C-5 carboxylation products were identified,vith 1,2-epoxybutane as the substrate. In the absence of CO2, propylene oxide and 1,2-epoxybutane were isomerized to form acetone and methyl ethyl ketone, respectively, as dead-end products, The carboxylation of short-chain epoxides to beta-keto acids is proposed to serve as the physiological reaction for the metabolism of aliphatic epoxides in Xanthobacter strain Py2.