Cells of Escherichia coli K-12 containing a cloned fragment of Pseudomonas putida TOL plasmid pWW0 produce the dye indigo. Analysis of the cloned fragment and Tn1000 transposon insertion mutagenesis has identified the xylA gene as being responsible for this phenotype. The xylA gene specifies xylene oxidase, a relaxed specificity enzyme that hydroxylates or monooxygenates toluene and xylenes and their corresponding alcohols. Indole, which is formed from tryptophan by tryptophanase in E. coli, was shown to be a precursor in the reaction sequence leading to indigo formation. These results suggest a novel route for bacterial production of indigo via hydroxylation of indole.