Recent studies have shown that molecular control of inner floral organ identity appears to be largely conserved between monocots and dicots, but little is known about the molecular mechanism underlying monocot outer floral organ development, a unique floral structure in grasses. In this study, we report the cloning of rice EXTRA GLUME1 (EG1) gene, a putative lipase gene, which specifies empty glume fate and floral determinacy. In addition to affecting the identity and number of empty glumes, mutations in EG1 caused ectopic floral organs to be formed each organ whorl or in extra ectopic whorls. Iterative glume-like structures or new floral organ primordia were formed in the presumptive region of carpel, resulting in an indeterminate floral meristem. EG1 is expressed strongly in inflorescence primordia and weakly in developing floral primordia. We also found that the floral meristem and organ identity gene OsLHS1 showed altered expression in both pattern and levels in the eg1 mutant, and is likely responsible for the pleiotropic floral defects in eg1. As a putative class III lipase that functionally differs from any known plant lipase, EG1 reveals a novel pathway that regulates rice empty glume fate and spikelet development.