Trehalose (alpha-D-glucopyranosyl-1,1-alpha-D-glucopyranose) is a non-reducing diglucoside found in various organisms that serves as a carbohydrate reserve and as an agent that protects against a variety of physical and chemical stresses. Deinococcus radiodurans possesses an alternative biosynthesis pathway for the synthesis of trehalose from maltooligosaccharides. This reaction is mediated by two enzymes: maltooligosyltrehalose synthase (MTSase) and maltooligosyltrehalose trehalohydrolase (MTHase). Here, we present the 1.1A resolution crystal structure of MTHase. It consists of three major domains: two beta-sheet domains and a conserved glycosidase (beta/alpha)8 barrel catalytic domain. Three subdomains consisting of short insertions were identified within the catalytic domain. Subsequently, structures of MTHase in complex with maltose and trehalose were obtained at 1.2 A and 1.5 A resolution, respectively. These structures reveal the importance of the three inserted subdomains in providing the key residues required for substrate recognition. Trehalose is recognised specifically in the +1 and +2 binding subsites by an extensive hydrogen-bonding network and a strong hydrophobic stacking interaction in between two aromatic residues. Moreover, upon binding to maltose, which mimics the substrate sugar chain, a major concerted conformational change traps the sugar chain in the active site. The presence of magnesium in the active site of the MTHase-maltose complex suggests that MTHase activity may be regulated by divalent cations.