AbstractUfmylation plays a crucial role in various cellular processes including DNA damage response, protein translation, and ER homeostasis. To date, little is known about how the enzymes responsible for ufmylation coordinate their action. Here, we study the details of UFL1 (E3) activity, its binding to UFC1 (E2), and its relation to UBA5 (E1), using a combination of structural modeling, X‐ray crystallography, NMR, and biochemical assays. Guided by Alphafold2 models, we generate an active UFL1 fusion construct that includes its partner DDRGK1 and solve the crystal structure of this critical interaction. This fusion construct also unveiled the importance of the UFL1 N‐terminal helix for binding to UFC1. The binding site suggested by our UFL1‐UFC1 model reveals a conserved interface, and competition between UFL1 and UBA5 for binding to UFC1. This competition changes in the favor of UFL1 following UFM1 charging of UFC1. Altogether, our study reveals a novel, terminal helix‐mediated regulatory mechanism, which coordinates the cascade of E1‐E2‐E3‐mediated transfer of UFM1 to its substrate and provides new leads to target this modification.