Cell-free particulate fractions of extracts from the obligate methylotroph Methylococcus capsulatus catalyze the reduced nicotinamide adenine dinucleotide (NADH) and O2-dependent oxidation of methane (methane hydroxylase). The only oxidation product detected was formate. These preparations also catalyze the oxidation of methanol and formaldehyde to formate in the presence or absence of phenazine methosulphate with oxygen as the terminal electron acceptor. Methane hydroxylase activity cannot be reproducibly obtained from disintegrated cell suspensions even though the whole cells actively respired when methane was presented as a substrate. Varying the disintegration method or extraction medium had no significant effect on the activities obtained. When active particles were obtained, hydroxylase activity was stable at 0 C for days. Methane hydroxylase assays were made by measuring the methane-dependent oxidation of NADH by O2. In separate experiments, methane consumption and the accumulation of formate were also demonstrated. Formate is not oxidized by these particulate fractions. The effects of particle concentration, temperature, pH, and phosphate concentration on enzymic activity are described. Ethane is utilized in the presence of NADH and O2. The stoichiometric relationships of the reaction(s) with methane as substrate were not established since (i) the presumed initial product, methanol, is also oxidized to formate, and (ii) the contribution that NADH oxidase activity makes to the observed consumption of reactants could not be assessed in the presence of methane. Studies with known inhibitors of electron transport systems indicate that the path of electron flow from NADH to oxygen is different for the NADH oxidase, methane hydroxylase, and methanol oxidase activities.