Bioactive N-acylethanolamines, including anandamide (an endocannabinoid) and N-palmitoylethanolamine (an anti-inflammatory and neuroprotective substance), are hydrolyzed to fatty acids and ethanolamine by fatty acid amide hydrolase. Moreover, we found another amidohydrolase catalyzing the same reaction only at acidic pH, and we purified it from rat lung (Ueda, N., Yamanaka, K., and Yamamoto, S. (2001) J. Biol. Chem. 276, 35552-35557). Here we report complementary DNA cloning and functional expression of the enzyme termed "N-acylethanolamine-hydrolyzing acid amidase (NAAA)" from human, rat, and mouse. The deduced primary structures revealed that NAAA had no homology to fatty acid amide hydrolase but belonged to the choloylglycine hydrolase family. Human NAAA was essentially identical to a gene product that had been noted to resemble acid ceramidase but lacked ceramide hydrolyzing activity. The recombinant human NAAA overexpressed in HEK293 cells hydrolyzed various N-acylethanolamines with N-palmitoylethanolamine as the most reactive substrate. Most interestingly, a very low ceramide hydrolyzing activity was also detected with NAAA, and N-lauroylethanolamine hydrolyzing activity was observed with acid ceramidase. By the use of tunicamycin and endoglycosidase, NAAA was found to be a glycoprotein. Furthermore, the enzyme was proteolytically processed to a shorter form at pH 4.5 but not at pH 7.4. Expression analysis of a green fluorescent protein-NAAA fusion protein showed a lysosome-like distribution in HEK293 cells. The organ distribution of the messenger RNA in rats revealed its wide distribution with the highest expression in lung. These results demonstrated that NAAA is a novel N-acylethanolamine-hydrolyzing enzyme that shows structural and functional similarity to acid ceramidase.