Direct functionalization of methane in natural gas remains a key challenge. We present a direct stepwise method for converting methane into methanol with high selectivity (similar to 97%) over a copper-containing zeolite, based on partial oxidation with water. The activation in helium at 673 kelvin (K), followed by consecutive catalyst exposures to 7 bars of methane and then water at 473 K, consistently produced 0.204 mole of CH3OH per mole of copper in zeolite. Isotopic labeling confirmed water as the source of oxygen to regenerate the zeolite active centers and renders methanol desorption energetically favorable. On the basis of in situ x-ray absorption spectroscopy, infrared spectroscopy, and density functional theory calculations, we propose a mechanism involving methane oxidation at Cu-II oxide active centers, followed by Cu-I reoxidation by water with concurrent formation of hydrogen.