Transaldolase catalyzes transfer of a dihydroxyacetone moiety from a ketose donor to an aldose acceptor. During catalysis, a Schiff-base intermediate between dihydroxyacetone and the epsilon-amino group of a lysine residue at the active site of the enzyme is formed. This Schiff-base intermediate has been trapped by reduction with potassium borohydride, and the crystal structure of this complex has been determined at 2.2 A resolution. The overall structures of the complex and the native enzyme are very similar; formation of the intermediate induces no large conformational changes. The dihydroxyacetone moiety is covalently linked to the side chain of Lys 132 at the active site of the enzyme. The Cl hydroxyl group of the dihydroxyacetone moiety forms hydrogen bonds to the side chains of residues Asn 154 and Ser 176. The C3 hydroxyl group interacts with the side chain of Asp 17 and Asn 35. Based on the crystal structure of this complex a reaction mechanism for transaldolase is proposed.