Limonene, a major component of citrus peel oil, has a number of applications related to microbiology. The antimicrobial properties of limonene make it a popular disinfectant and food preservative, while its potential as a biofuel component has made it the target of renewable production efforts through microbial metabolic engineering. For both applications, an understanding of microbial sensitivity or tolerance to limonene is crucial, but the mechanism of limonene toxicity remains enigmatic. In this study, we characterized a limonene-tolerant strain of Escherichia coli and found a mutation in ahpC, encoding alkyl hydroperoxidase, which alleviated limonene toxicity. We show that the acute toxicity previously attributed to limonene is largely due to the common oxidation product limonene hydroperoxide, which forms spontaneously in aerobic environments. The mutant AhpC protein with an L-to-Q change at position 177 (AhpC^L177Q) was able to alleviate this toxicity by reducing the hydroperoxide to a more benign compound. We show that the degree of limonene toxicity is a function of its oxidation level and that nonoxidized limonene has relatively little toxicity to wild-type E. coli cells. Our results have implications for both the renewable production of limonene and the applications of limonene as an antimicrobial.