Pentachlorophenol (PCP), a xenobiocide used to preserve lumbers, is a major environmental pollutant in North America. In spite of an expected high resistance to biodegradation, a number of aquatic and soil bacteria can degrade PCP. In this study, we cloned, expressed and purified tetrachlorobenzoquinone reductase (PcpD), the second enzyme in the PCP biodegradation pathway in Sphingobium chlorophenolicum. PcpD, present mainly as a homo-trimer, exhibited low but statistically significant activity in the reduction of tetrachlorobenzoquinone to tetrachlorohydroquinone. The optimal pH for PcpD activity was 7.0. PcpD was stimulated by tetrachlorohydroquinone at low concentrations but inhibited at high concentrations. Because of the constitutive expression and relatively high catalytic efficiency of downstream enzyme tetrachlorohydroquinone reductive dehalogenase, tetrachlorohydroquinone was unlikely to accumulate in high concentrations, suggesting that PcpD would only be stimulated by tetrachlorohydroquinone under in vivo conditions. It was also shown that PcpD was inhibited by PCP in a concentration-dependent manner. Therefore, PcpD was regulated by tetrachlorohydroquinone and PCP using a possible “Yin-Yang” mechanism, which maintained tetrachlorobeanzoquinone at a level that would neither significantly decrease the biodegradation of PCP nor cause cytotoxicity in S. chlorophenolicum cells. Structural model of PcpD showed that the putative tetrachlorobenzoquinone binding site, adjacent to the cofactor flavin mononucleotide and the 2Fe2S cluster, was situated in a deep pit on the surface and slightly positively charged.