KAI2 proteins, classified as plant α/β hydrolase receptors, are capable of perceiving smoke- derived butenolide signals and endogenous, yet unidentified KAI2-ligands (KLs). While the number of functional KAI2 receptors varies among land plant species, rice possesses only one KAI2 gene. Rice, a significant crop and representative of grasses, relies on KAI2-mediated Arbuscular mycorrhiza (AM) symbioses to flourish in traditionally arid and nutrient-poor environments. This study presents the first crystal structure of an active rice KAI2 hydrolase receptor. Our structural and biochemical analyses uncover grass-unique pocket residues influencing ligand sensitivity and hydrolytic activity. Through structure-guided analysis, we identify a specific residue whose mutation enables the increase or decrease of ligand perception, catalytic activity, and signal transduction. Furthermore, we investigate rice KAI2- mediated signaling by examining its ability to form a complex with its binding partner, the F-box protein DWARF3 (D3) ubiquitin ligase, demonstrating the significant role of hydrophobic interactions in the KAI2-D3 interface. This study provides new insights into the diverse and pivotal roles of the KAI2 signaling pathway in the plant kingdom, particularly in grasses.