Teicoplanin is a glycopeptide antibiotic with activity against Gram-positive bacteria and remains one of the last lines of clinical defense against certain bacterial infections. We have cloned, expressed, and purified the cytochrome P450 OxyE (CYP165D3) from the teicoplanin biosynthetic gene cluster of Actinoplanes teichomyceticus, which is responsible for the phenolic coupling of the aromatic side chains of the first and third peptide residues in the teicoplanin peptide. The crystal structure of OxyE has been determined to 2.5A resolution, revealing the probable binding surface for the carrier protein substrate and an extension of the active site into a pocket located above the beta-1 sheet. The binding of potential substrates to OxyE shows that peptidyl carrier protein-bound linear peptides bind to OxyE, albeit with low affinity in the absence of a phenolic cross-link that should normally be installed by another Oxy protein in the teicoplanin biosynthetic pathway. This result indicates that the carrier protein alone is not sufficient for tight substrate binding to OxyE and that the Oxy proteins sense the structure of the bound peptide in addition to the presence of the carrier protein, a feature distinct from other carrier protein/P450 systems.