Penicillins and cephalosporins are among the most widely used therapeutic agents. These antibiotics are produced from fermentation-derived materials as their chemical synthesis is not commercially viable. Unconventional steps in their biosynthesis are catalysed by Fe(II)-dependent oxidases/oxygenases; isopenicillin N synthase (IPNS) creates in one step the bicyclic nucleus of penicillins, and deacetoxycephalosporin C synthase (DAOCS) catalyses the expansion of the penicillin nucleus into the nucleus of cephalosporins. Both enzymes use dioxygen-derived ferryl intermediates in catalysis but, in contrast to IPNS, the ferryl form of DAOCS is produced by the oxidative splitting of a cosubstrate, 2-oxoglutarate (α-ketoglutarate). This route of controlled ferryl formation and reaction is common to many mononuclear ferrous enzymes, which participate in a broader range of reactions than their well-characterized counterparts, the haem enzymes. Here we report the first crystal structure of a 2-oxoacid-dependent oxygenase. High-resolution structures for apo-DAOCS, the enzyme complexed with Fe(II), and with Fe(II) and 2-oxoglutarate, were obtained from merohedrally twinned crystals. Using a model based on these structures, we propose a mechanism for ferryl formation.