Terpene cyclases (TCs), extraordinary enzymes that create the structural diversity seen in terpene natural products, are traditionally divided into two classes, class I and class II. Although the structural and mechanistic features of class I TCs are well-known, the corresponding details in class II counterparts have not been fully characterized. Here, we report the genome mining discovery and structural characterization of two class II sesquiterpene cyclases (STCs) from Streptomyces. These drimenyl diphosphate synthases (DMSs) are the first STCs shown to possess β,γ-didomain architecture. High-resolution X-ray crystal structures of DMS from Streptomyces showdoensis (SsDMS) in complex with both a farnesyl diphosphate and Mg2+ unveiled an induced-fit mechanism, with an unprecedented Mg2+ binding mode, finally solving one of the lingering questions in class II TC enzymology. This study supports continued genome mining for novel bacterial TCs and provides new mechanistic insights into canonical class II TCs that will lead to advances in TC engineering and synthetic biology.