The enzyme, prenyltransferase, which normally catalyzes the addition of an allylic pyrophosphate to isopentenyl pyrophosphate, has been found to catalyze the hydrolysis of its allylic substrate. The rate of this hydrolysis is markedly stimulated by inorganic pyrophosphate. Competition experiments with 2-fluoroisopentenyl pyrophosphate and inorganic pyrophosphate demonstrated that inorganic pyrophosphate stimulated hydrolysis by binding at the isopentenyl pyrophosphate site. Hydrolysis carried out in H218O or with (1S)-[1-3H]geranyl pyrophosphate show the C-O bond is broken and the C1 carbon of geranyl pyrophosphate is inverted in the process. These results are interpreted to favor a carbonium ion mechanism for the prenyltransferase reaction.