Tetrahydromethanopterin (H4 MPT) is a tetrahydrofolate analogue involved as a C1 carrier in the metabolism of various groups of microorganisms. How H4MPT is bound to the respective C1 unit converting enzymes remained elusive. We describe here the structure of the homopentameric formaldehyde-activating enzyme (Fae) from Methylobacterium extorquens AM1 established at 2.0 angstrom without and at 1.9 angstrom with methylene-H4MPT bound. Methylene-H4MPT is bound in an "S"-shaped conformation into the cleft formed between two adjacent subunits. Coenzyme binding is accompanied by side chain rearrangements up to 5 angstrom and leads to a rigidification of the C-terminal arm, a formation of a new hydrophobic cluster, and an inversion of the amide side chain of Gln88. Methylene-H4MPT in Fae shows a characteristic kink between the tetrahydropyrazine and the imidazolidine rings of 70 degrees that is more pronounced than that reported for free methylene-H4MPT in solution (50 degrees). Fae is an essential enzyme for energy metabolism and formaldehyde detoxification of this bacterium and catalyzes the formation of methylene-H4MPT from H4MPT and formaldehyde. The molecular mechanism ofthis reaction involving His22 as acid catalyst is discussed.