Abstract Background Nowadays there is a strong trend towards a circular economy using lignocellulosic biowaste for the production of biofuels and other bio-based products. The use of enzymes at several stages of the production process (e.g., saccharification) can offer a sustainable route due to avoidance of harsh chemicals and high temperatures. For novel enzyme discovery, physically linked gene clusters targeting carbohydrate degradation in bacteria, polysaccharide utilization loci (PULs), are recognized ‘treasure troves’ in the era of exponentially growing numbers of sequenced genomes. Results We determined the biochemical properties and structure of a protein of unknown function (PUF) encoded within PULs of metagenomes from beaver droppings and moose rumen enriched on poplar hydrolysate. The corresponding novel bifunctional carbohydrate esterase (CE), now named BD-FAE, displayed feruloyl esterase (FAE) and acetyl esterase activity on simple, synthetic substrates. Whereas acetyl xylan esterase (AcXE) activity was detected on acetylated glucuronoxylan from birchwood, only FAE activity was observed on acetylated and feruloylated xylooligosaccharides from corn fiber. The genomic contexts of 200 homologs of BD-FAE revealed that the 33 closest homologs appear in PULs likely involved in xylan breakdown, while the more distant homologs were found either in alginate-targeting PULs or else outside PUL contexts. Although the BD-FAE structure adopts a typical α/β-hydrolase fold with a catalytic triad (Ser-Asp-His), it is distinct from other biochemically characterized CEs. Conclusions The bifunctional CE, BD-FAE, represents a new candidate for biomass processing given its capacity to remove ferulic acid and acetic acid from natural corn and birchwood xylan substrates, respectively. Its detailed biochemical characterization and solved crystal structure add to the toolbox of enzymes for biomass valorization as well as structural information to inform the classification of new CEs.