The multifunctional AdhE protein of Escherichia coli (encoded by the adhE gene) physiologically catalyzes the sequential reduction of acetyl-CoA to acetaldehyde and then to ethanol under fermentative conditions. The NH(2)-terminal region of the AdhE protein is highly homologous to aldehyde:NAD(+) oxidoreductases, whereas the COOH-terminal region is homologous to a family of Fe(2+)-dependent ethanol:NAD(+) oxidoreductases. This fusion protein also functions as a pyruvate formate lyase deactivase. E. coli cannot grow aerobically on ethanol as the sole carbon and energy source because of inadequate rate of adhE transcription and the vulnerability of the AdhE protein to metal-catalyzed oxidation. In this study, we characterized 16 independent two-step mutants with acquired and improved aerobic growth ability on ethanol. The AdhE proteins in these mutants catalyzed the sequential oxidation of ethanol to acetaldehyde and to acetyl-CoA. All first stage mutants grew on ethanol with a doubling time of about 240 min. Sequence analysis of a randomly chosen mutant revealed an Ala-267 --> Thr substitution in the acetaldehyde:NAD(+) oxidoreductase domain of AdhE. All second stage mutants grew on ethanol with a doubling time of about 90 min, and all of them produced an AdhE(A267T/E568K). Purified AdhE(A267T) and AdhE(A267T/E568K) showed highly elevated acetaldehyde dehydrogenase activities. It therefore appears that when AdhE catalyzes the two sequential reactions in the counter-physiological direction, acetaldehyde dehydrogenation is the rate-limiting step. Both mutant proteins were more thermosensitive than the wild-type protein, but AdhE(A267T/E568K) was more thermal stable than AdhE(A267T). Since both mutant enzymes exhibited similar kinetic properties, the second mutation probably conferred an increased growth rate on ethanol by stabilizing AdhE(A267T).