Iron-rich (ferruginous) conditions were a prevalent feature of the ocean throughout much of Earth's history. The nature of elemental cycling in such settings is poorly understood, however, thus hampering reconstruction of paleoenvironmental conditions during key periods in Earth evolution. This is particularly true regarding controls on nutrient bioavailability, which is intimately linked to Earth's oxygenation history. Elemental scavenging during precipitation of iron minerals exerts a major control on nutrient cycling in ferruginous basins, and the predictable nature of removal processes provides a mechanism for reconstructing ancient ocean chemistry. Such reconstructions depend, however, on precise knowledge of the iron minerals formed in the water column. Here, we combine mineralogical and geochemical analyses to demonstrate formation of the mixed-valence iron mineral, green rust, in ferruginous Lake Matano, Indonesia. Carbonated green rust (GR1), along with significant amounts of magnetite, forms below the chemocline via the reduction of ferrihydrite. Further, we show that uptake of dissolved nickel, a key micronutrient required for methanogenesis, is significantly enhanced during green rust formation, suggesting a major control on methane production in ancient ferruginous settings.