A novel type of a microbial N-acyl amino acid hydrolase (AAH) from insect gut bacteria was purified, cloned and functionally characterized. The enzyme was obtained from Microbacterium arborescens SE14 isolated from the foregut of larvae of the generalist herbivore Spodoptera exigua. The substrates of AAH are N-acyl-glutamines previously reported to elicit plant defence reactions after introduction into the leaf during feeding. The isolated AAH catalyses the hydrolysis of the amide bond (Km = 36 μmol l−1) and, less efficient, the formation (Km = 3 mmol l−1) of the elicitor active N-acyl amino acids. The AAH from M. arborescens SE14 shows no homology to known fatty acyl amidases (EC 188.8.131.52) but belongs to the family of Dps proteins (DNA-binding protein from starved cell). In line with other DPS proteins AAH is a homododecamer (monomer 17 181 Da) and contains iron atoms (c. 1–16 iron atoms per subunit). Unlike genuine DPS proteins the enzyme does not significantly bind DNA. Amino acid hydrolase is the first member of the DPS family that catalyses the cleavage or formation of amide bonds. The participation of a microbial enzyme in the homeostasis of N-acyl-glutamines in the insect gut adds further complexity to the interaction between plants and their herbivores.