Beta-oxidation of long-chain fatty acids and branched-chain fatty acids is carried out in mammalian peroxisomes by a multifunctional enzyme (MFE) or D-bifunctional protein, with separate domains for hydroxyacyl coenzyme A (CoA) dehydrogenase, enoyl-CoA hydratase, and steroid carrier protein SCP2. We have found that Dictyostelium has a gene, mfeA, encoding MFE1 with homology to the hydroxyacyl-CoA dehydrogenase and SCP2 domains. A separate gene, mfeB, encodes MFE2 with homology to the enoyl-CoA hydratase domain. When grown on a diet of bacteria, Dictyostelium cells in which mfeA is disrupted accumulate excess cyclopropane fatty acids and are unable to develop beyond early aggregation. Axenically grown mutant cells, however, developed into normal fruiting bodies composed of spores and stalk cells. Comparative analysis of whole-cell lipid compositions revealed that bacterially grown mutant cells accumulated cyclopropane fatty acids that remained throughout the developmental stages. Such a persistent accumulation was not detected in wild-type cells or axenically grown mutant cells. Bacterial phosphatidylethanolamine that contains abundant cyclopropane fatty acids inhibited the development of even axenically grown mutant cells, while dipalmitoyl phosphatidylethanolamine did not. These results suggest that MFE1 protects the cells from the increase of the harmful xenobiotic fatty acids incorporated from their diets and optimizes cellular lipid composition for proper development. Hence, we propose that this enzyme plays an irreplaceable role in the survival strategy of Dictyostelium cells to form spores for their efficient dispersal in nature.