KAI2 receptors, classified as plant α/β hydrolase enzymes, are capable of perceiving smoke-derived butenolide signals and endogenous yet unidentified KAI2-ligands (KLs). While the number of functional KAI2 receptors varies among land plant species, rice has only one KAI2 gene. Rice, a significant crop and representative of grasses, relies on KAI2-mediated Arbuscular mycorrhiza (AM) symbioses to flourish in traditionally arid and nutrient-poor environments. This study presents the first crystal structure of an active rice (Oryza sativa, Os) KAI2 hydrolase receptor. Our structural and biochemical analyses uncover grass-unique pocket residues influencing ligand sensitivity and hydrolytic activity. Through structure-guided analysis, we identify a specific residue whose mutation enables the increase or decrease of ligand perception, catalytic activity, and signal transduction. Furthermore, we investigate OsKAI2-mediated signaling by examining its ability to form a complex with its binding partner, the F-box protein DWARF3 (D3) ubiquitin ligase and subsequent degradation of the target substrate OsSMAX1, demonstrating the significant role of hydrophobic interactions in the OsKAI2-D3 interface. This study provides new insights into the diverse and pivotal roles of the OsKAI2 signaling pathway in the plant kingdom, particularly in grasses.