Heparin lyase I (heparinase I) specifically depolymerizes heparin, cleaving the glycosidic linkage next to iduronic acid. Here, we show the crystal structures of heparinase I from Bacteroides thetaiotaomicron at various stages of the reaction with heparin oligosaccharides before and just after cleavage and product disaccharide. The heparinase I structure is comprised of a beta-jellyroll domain harboring a long and deep substrate binding groove and an unusual thumb-resembling extension. This thumb, decorated with many basic residues, is of particular importance in activity especially on short heparin oligosaccharides. Unexpected structural similarity of the active site to that of heparinase II with an (alpha/alpha)(6) fold is observed. Mutational studies and kinetic analysis of this enzyme provide insights into the catalytic mechanism, the substrate recognition, and processivity.