Many species of Gram-positive bacteria use sortase transpeptidases to covalently affix proteins to their cell wall or to assemble pili. Sortase-displayed proteins perform critical and diverse functions for cell survival, including cell adhesion, nutrient acquisition, and morphological development, among others. Based on their amino acid sequences, there are at least six types of sortases (class A to F enzymes); however, class E enzymes have not been extensively studied. Class E sortases are used by soil and freshwater-dwelling Actinobacteria to display proteins that contain a non-canonical LAXTG sorting signal, which differs from 90% of known sorting signals by substitution of alanine for proline. Here we report the first crystal structure of a class E sortase, the 1.93 Å resolution structure of the SrtE1 enzyme from Streptomyces coelicolor. The active site is bound to a tripeptide, providing insight into the mechanism of substrate binding. SrtE1 possesses β3/β4 and β6/β7 active site loops that contact the LAXTG substrate and are structurally distinct from other classes. We propose that SrtE1 and other class E sortases employ a conserved tyrosine residue within their β3/β4 loop to recognize the amide nitrogen of alanine at position P3 of the sorting signal through a hydrogen bond, as seen here. Incapability of hydrogen-bonding with canonical proline-containing sorting signals likely contributes to class E substrate specificity. Furthermore, we demonstrate that surface anchoring of proteins involved in aerial hyphae formation requires an N-terminal segment in SrtE1 that is presumably positioned within the cytoplasm. Combined, our results reveal unique features within class E enzymes that enable them to recognize distinct sorting signals, and could facilitate the development of substrate-based inhibitors of this important enzyme family.