Serine hydroxymethyltransferase (SHMT) catalyzes the reversible interconversion of serine and glycine with tetrahydrofolate serving as the one-carbon carrier. SHMT also catalyzes the folate-independent retroaldol cleavage of allothreonine and 3-phenylserine and the irreversible conversion of 5,10-methenyltetrahydrofolate to 5-formyltetrahydrofolate. Studies of wild-type and site mutants of SHMT have failed to clearly establish the mechanism of this enzyme. The cleavage of 3-hydroxy amino acids to glycine and an aldehyde occurs by a retroaldol mechanism. However, the folate-dependent cleavage of serine can be described by either the same retroaldol mechanism with formaldehyde as an enzyme-bound intermediate or by a nucleophilic displacement mechanism in which N5 of tetrahydrofolate displaces the C3 hydroxyl of serine, forming a covalent intermediate. Glu75 of SHMT is clearly involved in the reaction mechanism; it is within hydrogen bonding distance of the hydroxyl group of serine and the formyl group of 5-formyltetrahydrofolate in complexes of these species with SHMT. This residue was changed to Leu and Gln, and the structures, kinetics, and spectral properties of the site mutants were determined. Neither mutation significantly changed the structure of SHMT, the spectral properties of its complexes, or the kinetics of the retroaldol cleavage of allothreonine and 3-phenylserine. However, both mutations blocked the folate-dependent serine-to-glycine reaction and the conversion of methenyltetrahydrofolate to 5-formyltetrahydrofolate. These results clearly indicate that interaction of Glu75 with folate is required for folate-dependent reactions catalyzed by SHMT. Moreover, we can now propose a promising modification to the retroaldol mechanism for serine cleavage. As the first step, N5 of tetrahydrofolate makes a nucleophilic attack on C3 of serine, breaking the C2-C3 bond to form N5-hydroxymethylenetetrahydrofolate and an enzyme-bound glycine anion. The transient formation of formaldehyde as an intermediate is possible, but not required. This mechanism explains the greatly enhanced rate of serine cleavage in the presence of folate, and avoids some serious difficulties presented by the nucleophilic displacement mechanism involving breakage of the C3-OH bond.