A thermostable -galactosidase which catalyzed the production of galacto-oligosaccharide from lactose was solubilized from a cell wall preparation of Sterigmatomyces elviae CBS8119. The enzyme was purified to homogeneity by means of chromatography on DEAE-Toyopearl, Butyl-Toyopearl, Chromatofocusing, and p-aminobenzyl 1-thio--D-galactopyranoside agarose columns. The molecular weight of the purified enzyme was estimated to be about 170,000 by gel filtration with a Highload-Superdex 200pg column and 86,000 by sodium dodecyl sulfate-polyacrylamide gel electrophoresis. Its isoelectric point, determined by polyacrylamide gel electrofocusing, was 4.1. The optimal temperature for enzyme activity was 85؇C. It was stable at temperatures up to 80؇C for 1 h. The optimal pH range for the enzyme was 4.5 to 5.0, it was stable at pH 2.5 to 7.0, and its activity was inhibited by Hg 2؉. The K m values for o-nitrophenyl--D-galactopyranoside and lactose were 9.5 and 2.4 mM, respectively, and the maximum velocities for these substrates were 96 and 240 mol/min per mg of protein, respectively. In addition, this enzyme possessed a high level of transgalactosylation activity. Galacto-oligosaccharides, including tri-and tetrasaccharides, were produced with a yield, by weight, of 39% from 200-mg/ml lactose.