The 1.8 A resolution structure of the glycosyl-enzyme intermediate formed on the retaining beta-1,4-xylanase from Bacillus circulans has been determined using X-ray crystallographic techniques. The 2-fluoro-xylose residue bound in the -1 subsite adopts a 2,5B (boat) conformation, allowing atoms C5, O5, C1, and C2 of the sugar to achieve coplanarity as required at the oxocarbenium ion-like transition states of the double-displacement catalytic mechanism. Comparison of this structure to that of a mutant of this same enzyme noncovalently complexed with xylotetraose [Wakarchuk et al. (1994) Protein Sci. 3, 467-475] reveals a number of differences beyond the distortion of the sugar moiety. Most notably, a bifurcated hydrogen bond interaction is formed in the glycosyl-enzyme intermediate involving Heta of Tyr69, the endocyclic oxygen (O5) of the xylose residue in the -1 subsite, and Oepsilon2 of the catalytic nucleophile, Glu78. To gain additional understanding of the role of Tyr69 at the active site of this enzyme, we also determined the 1.5 A resolution structure of the catalytically inactive Tyr69Phe mutant. Interestingly, no significant structural perturbation due to the loss of the phenolic group is observed. These results suggest that the interactions involving the phenolic group of Tyr69, O5 of the proximal saccharide, and Glu78 Oepsilon2 are important for the catalytic mechanism of this enzyme, and it is proposed that, through charge redistribution, these interactions serve to stabilize the oxocarbenium-like ion of the transition state. Studies of the covalent glycosyl-enzyme intermediate of this xylanase also provide insight into specificity, as contacts with C5 of the xylose moiety exclude sugars with hydroxymethyl substituents, and the mechanism of catalysis, including aspects of stereoelectronic theory as applied to glycoside hydrolysis.