The enzyme thymidylate synthase (TS) catalyzes the reductive methylation of 2'-deoxyuridine 5'-monophosphate (dUMP) to 2'-deoxythymidine 5'-monophosphate. Using kinetic and X-ray crystallography experiments, we have examined the role of the highly conserved Tyr-261 in the catalytic mechanism of TS. While Tyr-261 is distant from the site of methyl transfer, mutants at this position show a marked decrease in enzymatic activity. Given that Tyr-261 forms a hydrogen bond with the dUMP 3'-O, we hypothesized that this interaction would be important for substrate binding, orientation, and specificity. Our results, surprisingly, show that Tyr-261 contributes little to these features of the mechanism of TS. However, the residue is part of the structural core of closed ternary complexes of TS, and conservation of the size and shape of the Tyr side chain is essential for maintaining wild-type values of kcat/Km. Moderate increases in Km values for both the substrate and cofactor upon mutation of Tyr-261 arise mainly from destabilization of the active conformation of a loop containing a dUMP-binding arginine. Besides binding dUMP, this loop has a key role in stabilizing the closed conformation of the enzyme and in shielding the active site from the bulk solvent during catalysis. Changes to atomic vibrations in crystals of a ternary complex of Escherichia coli Tyr261Trp are associated with a greater than 2000-fold drop in kcat/Km. These results underline the important contribution of dynamics to catalysis in TS.