It has been shown that highly conserved residues that form crucial structural elements of the catalytic apparatus may be used to account for the evolutionary history of enzymes. Using saturation mutagenesis, we investigated the role of a conserved residue (Arg526) at the active site of acylaminoacyl peptidase from hyperthermophilic Aeropyrum pernix K1 in substrate discrimination and catalytic mechanism. This enzyme has both peptidase and esterase activities. The esterase activity of the wild-type enzyme with p-nitrophenyl caprylate as substrate is 7 times higher than the peptidase activity with Ac-Leu-p- nitroanilide as substrate. However, with the same substrates, this difference was increased to 150-fold for mutant R526V. A more dramatic effect occurred with mutant R526E, which essentially completely abolished the peptidase activity but decreased the esterase activity only by a factor of 2, leading to a 785-fold difference in the enzyme activities. These results provide rare examples that illustrate how enzymes can be evolved to discriminate their substrates by a single mutation. The possible structural and energetic effects of the mutations on kcat and Km of the enzyme were discussed based on molecular dynamics simulation studies.