Methanotrophic bacteria are capable of using methane as their sole source of carbon and energy. The first step in methane metabolism, the oxidation of methane to methanol, is catalyzed by a fascinating enzyme system called methane monooxygenase (MMO). The selective oxidation of the very stable C−H bond in methane under ambient conditions is a remarkable feat that has not yet been repeated by synthetic catalysts and has attracted considerable scientific and commercial interest. The best studied MMO is a complex enzyme system that consists of three soluble protein components, all of which are required for efficient catalysis. Dioxygen activation and subsequent methane hydroxylation are catalyzed by a hydroxylase enzyme that contains a non-heme diiron site. A reductase protein accepts electrons from NADH and transfers them to the hydroxylase where they are used for the reductive activation of O2. The third protein component couples electron and dioxygen consumption with methane oxidation. In this review we examine different aspects of catalysis by the MMO proteins, including the mechanisms of dioxygen activation at the diiron site and substrate hydroxylation by the activated oxygen species. We also discuss the role of complex formation between the different protein components in regulating various aspects of catalysis.