The structure of the staphylococcal nuclease (EC 3.1.4.7)-thymidine 3',5'-bisphosphate-Ca(2+) (enzyme-inhibitor) complex has been extended to 1.5-A resolution by using much additional data and a phase refinement scheme based on an electron-density map modification procedure. By correlating this structure with the known properties of the enzyme, a mechanism of action is proposed that involves nucleophilic attack on phosphorus by a water molecule, which is bound to Glu-43, in line with the 5'-CH(2)O(H) leaving group. The carboxylate of Glu-43 promotes this attack by acting as a general base for the abstraction of a proton from the attacking water molecule. Nucleophilic attack is further facilitated by polarization of the phosphodiester by an ionic interaction between a Ca(2+) ion and a phosphate oxygen atom and by four hydrogen bonds to phosphate oxygen atoms from guanidinium ions of Arg-35 and Arg-87. These interactions may also catalyze the reaction by lowering the energy of a trigonal bipyramidal transition state. The hydrolysis of nucleic acid substrate proceeds by cleavage of the 5'-P-O bond to yield a free 5'-hydroxyl group and a terminal, 3'-phosphate monoester group. In the inhibitor complex the only general acid group found in a position to donate a proton to the leaving 5'-oxygen is the guanidinium ion of Arg-87. Alternative proton donors, presently lacking direct structural support, could be the phenolic hydroxyl group of Tyr-113 or a water molecule. The precision and rigidity of the location of the reactants at the active site and the probable dual binding and catalytic roles of the guanidinium ions of Arg-35 and Arg-87 are especially noteworthy.