The LacLM β-galactosidase of Lactobacillus fermentum K4 is encoded by 2 consecutive genes, lacL (large subunit) and lacM (small subunit), that share 17 overlapping nucleotides. Phylogenetic analysis revealed that this enzyme was closely related to other Lactobacillus β-galactosidases and provided significant insight into its common and distinct characteristics. We cloned both the lacL and lacM genes of L. fermentum K4 and heterologously expressed each in Escherichia coli, although the recombinant enzyme was only functional when both were expressed on the same plasmid. We evaluated the enzymatic properties of this species-specific LacLM β-galactosidase and discovered that it acts as both a hydrolase, bioconverting lactose into glucose and galactose, and a transgalactosylase, generating prebiotic galacto-oligosaccharides (GOS). The recombinant β-galactosidase showed a broad pH optimum and stability around neutral pH. The optimal temperature and Michaelis constant (K(m)) for the substrates o-nitrophenyl-β-D-galactopyranoside and lactose were, respectively, 40°C and 45 to 50°C and 1.31 mM and 27 mM. The enzyme activity was stimulated by some cations such as Na⁺, K⁺, and Mg²⁺. In addition, activity was also enhanced by ethanol (15%, wt/vol). The transgalactosylation activity of L. fermentum K4 β-galactosidase effectively and rapidly generated GOS, up to 37% of the total sugars from the reaction. Collectively, our results suggested that the β-galactosidase from L. fermentum K4 could be exploited for the formation of GOS.