Nitrous oxide (N2O) is generated by natural and anthropogenic processes and has a critical role in environmental chemistry. It has an ozone-depleting potential similar to that of hydrochlorofluorocarbons as well as a global warming potential exceeding that of CO2 300-fold(1,2). In bacterial denitrification, N2O is reduced to N-2 by the copper-dependent nitrous oxide reductase (N2OR)(3). This enzyme carries the mixed-valent Cu-A centre and the unique, tetranuclear Cu-Z site. Previous structural data were obtained with enzyme isolated in the presence of air that is catalytically inactive without prior reduction. Its Cu-Z site was described as a [4Cu:S] centre, and the substrate-binding mode and reduction mechanism remained elusive. Here we report the structure of purple N2OR from Pseudomonas stutzeri, handled under the exclusion of dioxygen, and locate the substrate in N2O-pressurized crystals. The active Cu-Z cluster contains two sulphur atoms, yielding a [4Cu:2S] stoichiometry; and N2O bound side-on at Cu-Z, in close proximity to Cu-A. With the substrate located between the two clusters, electrons are transferred directly from Cu-A to N2O, which is activated by side-on binding in a specific binding pocket on the face of the [4Cu:2S] centre. These results reconcile a multitude of available biochemical data on N2OR that could not be explained by earlier structures, and outline a mechanistic pathway in which both metal centres and the intervening protein act in concert to achieve catalysis. This structure represents the first direct observation, to our knowledge, of N2O bound to its reductase, and sheds light on the functionality of metalloenzymes that activate inert small-molecule substrates. The principle of using distinct clusters for substrate activation and for reduction may be relevant for similar systems, in particular nitrogen-fixing nitrogenase(4).