Phenol hydroxylase that catalyzes the conversion of phenol to catechol in Rhodococcus erythropolis UPV-1 was identified as a two-component flavin-dependent monooxygenase. The two proteins are encoded by the genes pheA1 and pheA2, located very closely in the genome. The sequenced pheA1 gene was composed of 1,629 bp encoding a protein of 542 amino acids, whereas the pheA2 gene consisted of 570 bp encoding a protein of 189 amino acids. The deduced amino acid sequences of both genes showed high homology with several two-component aromatic hydroxylases. The genes were cloned separately in cells of Escherichia coli M15 as hexahistidine-tagged proteins, and the recombinant proteins His(6)PheA1 and His(6)PheA2 were purified and its catalytic activity characterized. His(6)PheA1 exists as a homotetramer of four identical subunits of 62 kDa that has no phenol hydroxylase activity on its own. His(6)PheA2 is a homodimeric flavin reductase, consisting of two identical subunits of 22 kDa, that uses NAD(P)H in order to reduce flavin adenine dinucleotide (FAD), according to a random sequential kinetic mechanism. The reductase activity was strongly inhibited by thiol-blocking reagents. The hydroxylation of phenol in vitro requires the presence of both His(6)PheA1 and His(6)PheA2 components, in addition to NADH and FAD, but the physical interaction between the proteins is not necessary for the reaction.