Clavaminate synthase (CAS), a remarkable Fe(II)/2-oxoglutarate oxygenase, catalyzes three separate oxidative reactions in the biosynthesis of clavulanic acid, a clinically used inhibitor of serine beta-lactamases. The first CAS-catalyzed step (hydroxylation) is separated from the latter two (oxidative cyclization/desaturation) by the action of an amidinohydrolase. Here, we describe crystal structures of CAS in complex with Fe(II), 2-oxoglutarate (2OG) and substrates (N-alpha-acetyl-L-arginine and proclavaminic acid). They reveal how CAS catalyzes formation of the clavam nucleus, via a process unprecedented in synthetic organic chemistry, and suggest how it discriminates between substrates and controls reaction of its highly reactive ferryl intermediate. The presence of an unpredicted jelly roll beta-barrel core in CAS implies divergent evolution within the family of 2OG and related oxygenases. Comparison with other non-heme oxidases/oxygenases reveals flexibility in the position which dioxygen ligates to the iron, in contrast to the analogous heme-using enzymes.