Peroxisomes function in beta-oxidation of very long and long-chain fatty acids, dicarboxylic fatty acids, bile acid intermediates, prostaglandins, leukotrienes, thromboxanes, pristanic acid, and xenobiotic carboxylic acids. These lipids are mainly chain-shortened for excretion as the carboxylic acids or transported to mitochondria for further metabolism. Several of these carboxylic acids are slowly oxidized and may therefore sequester coenzyme A (CoASH). To prevent CoASH sequestration and to facilitate excretion of chain-shortened carboxylic acids, acyl-CoA thioesterases, which catalyze the hydrolysis of acyl-CoAs to the free acid and CoASH, may play important roles. Here we have cloned and characterized a peroxisomal acyl-CoA thioesterase from mouse, named PTE-2 (peroxisomal acyl-CoA thioesterase 2). PTE-2 is ubiquitously expressed and induced at mRNA level by treatment with the peroxisome proliferator WY-14,643 and fasting. Induction seen by these treatments was dependent on the peroxisome proliferator-activated receptor alpha. Recombinant PTE-2 showed a broad chain length specificity with acyl-CoAs from short- and medium-, to long-chain acyl-CoAs, and other substrates including trihydroxycoprostanoyl-CoA, hydroxymethylglutaryl-CoA, and branched chain acyl-CoAs, all of which are present in peroxisomes. Highest activities were found with the CoA esters of primary bile acids choloyl-CoA and chenodeoxycholoyl-CoA as substrates. PTE-2 activity is inhibited by free CoASH, suggesting that intraperoxisomal free CoASH levels regulate the activity of this enzyme. The acyl-CoA specificity of recombinant PTE-2 closely resembles that of purified mouse liver peroxisomes, suggesting that PTE-2 is the major acyl-CoA thioesterase in peroxisomes. Addition of recombinant PTE-2 to incubations containing isolated mouse liver peroxisomes strongly inhibited bile acid-CoA:amino acid N-acyltransferase activity, suggesting that this thioesterase can interfere with CoASH-dependent pathways. We propose that PTE-2 functions as a key regulator of peroxisomal lipid metabolism.