To obtain structural insights into the emergence of biological functions from catalytically promiscuous enzymes, we reconstructed an ancestor of catalytically distinct, but evolutionarily related, haloalkane dehalogenases (EC 3.8.1.5) and Renilla luciferase (EC 1.13.12.5). This ancestor has both hydrolase and monooxygenase activities. Its crystal structure solved to 1.39 Å resolution revealed the presence of a catalytic pentad conserved in both dehalogenase and luciferase descendants and a molecular oxygen bound in between two residues typically stabilizing a halogen anion. The differences in the conformational dynamics of the specificity-determining cap domains between the ancestral and descendant enzymes were accessed by molecular dynamics and hydrogen–deuterium exchange mass spectrometry. Stopped-flow analysis revealed that the alkyl enzyme intermediate formed in the luciferase-catalyzed reaction is trapped by blockage of a hydrolytic reaction step. A single-point mutation (Ala54Pro) adjacent to one of the catalytic residues bestowed hydrolase activity on the modern luciferase by enabling cleavage of this intermediate. Thus, a single substitution next to the catalytic pentad may enable the emergence of promiscuous activity at the enzyme class level, and ancestral reconstruction has a clear potential for obtaining multifunctional catalysts.