Salicylate hydroxylase (NahG) is a flavin-dependent monooxygenase that catalyzes the decarboxylative hydroxylation of salicylate into catechol in the naphthalene degradation pathway in Pseudomonas putida G7. We explored the mechanism of action of this enzyme in detail using a combination of structural and biophysical methods. NahG shares many structural and mechanistic features with other versatile flavin-dependent monooxygenases, with potential biocatalytic applications. The crystal structure at 2.0 Å resolution for the apo form of NahG adds a new snapshot preceding the FAD binding in flavin-dependent monooxygenases. The kcat/Km for the salicylate reaction catalyzed by the holo form is >105 M−1 s−1 at pH 8.5 and 25 °C. Hammett plots for Km and kcat using substituted salicylates indicate change in rate-limiting step. Electron-donating groups favor the hydroxylation of salicylate by a peroxyflavin to yield a Wheland-like intermediate, whereas the decarboxylation of this intermediate is faster for electron-withdrawing groups. The mechanism is supported by structural data and kinetic studies at different pHs. The salicylate carboxyl group lies near a hydrophobic region that aids decarboxylation. A conserved histidine residue is proposed to assist the reaction by general base/general acid catalysis.