The three-dimensional structures of two HPII variants, V169C and H392Q, have been determined at resolutions of 1.8 and 2.1 A, respectively. The V169C variant contains a new type of covalent bond between the sulfur atom of Cys(169) and a carbon atom on the imidazole ring of the essential His(128). This variant enzyme has only residual catalytic activity and contains heme b. The chain of water molecules visible in the main channel may reflect the organization of the hydrogen peroxide substrates in the active enzyme. Two alternative mechanisms, involving either compound I or free radical intermediates, are presented to explain the formation of the Cys-His covalent bond. The H392Q and H392E variants exhibit 75 and 25% of native catalytic activity, respectively. The Gln(392) variant contains only heme b, whereas the Glu(392) variant contains a mixture of heme b and cis and trans isomers of heme d, suggesting of a role for this residue in heme conversion. Replacement of either Gln(419) and Ser(414), both of which interact with the heme, affected the cis:trans ratio of spirolactone heme d. Implications for the heme oxidation mechanism and the His-Tyr bond formation in HPII are considered.