The ascomycetous yeast Candida parapsilosis CBS604 catabolizes 4-hydroxybenzoate through the initial formation of hydroquinone (1,4-dihydroxybenzene). High levels of hydroquinone hydroxylase activity are induced when the yeast is grown on either 4-hydroxybenzoate, 2,4-dihydroxybenzoate, 1,3-dihydroxybenzene or 1,4-dihydroxybenzene as the sole carbon source. The monooxygenase constitutes up to 5␘f the total amount of protein and is purified to apparent homogeneity in three chromatographic steps. Hydroquinone hydroxylase from C. parapsilosis is a homodimer of about 150 kDa with each 76-kDa subunit containing a tightly noncovalently bound FAD. The flavin prosthetic group is quantitatively resolved from the protein at neutral pH in the presence of chaotropic salts. The apoenzyme is dimeric and readily reconstituted with FAD. Hydroquinone hydroxylase from C. parapsilosis catalyzes the ortho-hydroxylation of a wide range of monocyclic phenols with the stoichiometric consumption of NADPH and oxygen. With most aromatic substrates, no uncoupling of hydroxylation occurs. Hydroxylation of monofluorinated phenols is highly regiospecific with a preference for C6 hydroxylation. Binding of phenol highly stimulates the rate of flavin reduction by NADPH. At pH 7.6, 25 °C, this step does not limit the rate of overall catalysis. During purification, hydroquinone hydroxylase is susceptible towards limited proteolysis. Proteolytic cleavage does not influence the enzyme dimeric nature but results in relatively stable protein fragments of 55, 43, 35 and 22 kDa. N-Terminal peptide sequence analysis revealed the presence of two nick sites and showed that hydroquinone hydroxylase from C. parapsilosis is structurally related to phenol hydroxylase from Trichosporon cutaneum. The implications of these findings for the catalytic mechanism of hydroquinone hydroxylase are discussed.