Bacillus megaterium cytochrome P-450BM-3 and its two functional domains, the heme and flavin domains, have been purified and characterized using an Escherichia coli expression system. Recombinant P-450BM-3 behaves both spectrally and enzymatically the same as the enzyme produced from the natural host, B. megaterium, and another E. coli system recently described (Bouddupalli, S. S., Estabrook, R. W., and Peterson, J. A. (1990) J. Biol. Chem. 265, 4233-4239). Reduction of the flavins in P-450BM-3 domain with NADPH appears to be very similar to microsomal P-450 reductases where two reducing equivalents are consumed to fully reduce the FMN while the FAD is converted to the semiquinone in an one electron reduction. NADPH reduction of the heme occurs only in the presence of substrate suggesting, by analogy with the cytochrome P-450CAM system, a possible increase in iron redox potential of the heme upon substrate binding which facilitates electron transfer from the flavins to the heme. The flavin domain retains a high level of cytochrome c reductase activity and also reacts with NADPH to give a 3-electron reduced product. The heme domain retains the ability to bind substrate and generates the characteristic 450-nm absorption band upon reduction in the presence of CO. The heme domain has been crystallized and a preliminary set of x-ray diffraction data obtained.