Terpenes constitute the largest and structurally most diverse natural product family. Most terpenoids exhibit a stereochemically complex macrocyclic core, which is generated by C-C bond forming of aliphatic oligo-prenyl precursors. This reaction is catalysed by terpene synthases (TPSs), which are capable of chaperoning highly reactive carbocation intermediates through an enzyme-specific reaction. Due to the instability of carbocation intermediates, the proteins' structural dynamics and enzyme:substrate interactions during TPS catalysis remain elusive. Here, we present the structure of the diterpene synthase CotB2, in complex with an in crystallo cyclised abrupt reaction product and a substrate-derived diphosphate. We captured additional snapshots of the reaction to gain an overview of CotB2's catalytic mechanism. To enhance insights into catalysis, structural information is augmented with multiscale molecular dynamic simulations. Our data represent fundamental TPS structure dynamics during catalysis, which ultimately enable rational engineering towards tailored terpene macrocycles that are inaccessible by conventional chemical synthesis.