We previously discovered N-substituted formamide deformylase (NfdA) in Arthrobacter pascens F164, which degrades N-substituted formamide (Fukatsu, H., Hashimoto, Y., Goda, M., Higashibata, H., and Kobayashi, M. (2004) Proc. Natl. Acad. Sci. U.S.A. 101, 13726–13731). In this study, we found an enzyme involved in the first step of isonitrile metabolism, isonitrile hydratase, that hydrates isonitrile to the corresponding N-substituted formamide. First, we investigated the optimum culture conditions for the production of isonitrile hydratase. The highest enzyme activity was obtained when A. pascens F164 was cultured in a nutrient medium containing N-benzylformamide. This Arthrobacter isonitrile hydratase was purified, characterized, and compared with Pseudomonas putida N19-2 isonitrile hydratase (InhA), which is the sole one reported at present. Arthrobacter isonitrile hydratase was found to have a molecular mass of about 530 kDa and to consist of 12 identical subunits. The apparent K_m value for cyclohexyl isocyanide was 0.95 ± 0.05 mm. A. pascens F164 grew and exhibited the isonitrile hydratase and N-substituted formamide deformylase activities when cultured in a medium containing an isonitrile as the sole carbon and nitrogen sources. However, both enzyme activities were not observed on culture in a medium containing glycerol and (NH₄)₂SO₄ as the sole carbon and nitrogen sources, respectively. These findings suggested that the Arthrobacter enzyme is an inducible enzyme, possibly involved in assimilation and/or detoxification of isonitrile. Moreover, gene cloning of the Arthrobacter enzyme revealed no sequence similarity between this enzyme and InhA. Comparison of their properties and features demonstrated that the two enzymes are biochemically, immunologically, and structurally different from each other. Thus, we discovered a new isonitrile hydratase named InhB.