The type II restriction endonuclease Sau3AI cleaves the sequence 5′-GATC-3′ in double-strand DNA producing two sticky ends. Sau3AI cuts both DNA strands regardless of methylation status. Here, we report the crystal structures of the active site mutant Sau3AI-E64A and the C-terminal domain Sau3AI-C with a bound GATC substrate. Interestingly, the catalytic site of the N-terminal domain (Sau3AI-N) is spatially blocked by the C-terminal domain, suggesting a potential self-inhibition of the enzyme. Interruption of Sau3AI-C binding to substrate DNA disrupts Sau3AI function, suggesting a functional linkage between the N- and C-terminal domains. We propose that Sau3AI-C behaves as an allosteric effector binding one GATC substrate, which triggers a conformational change to open the N-terminal catalytic site, resulting in the subsequent GATC recognition by Sau3AI-N and cleavage of the second GATC site. Our data indicate that Sau3AI and UbaLAI might represent a new subclass of type IIE restriction enzymes.