The diterpene cyclase CotB2 catalyzes the cyclization of geranylgeranyl diphosphate (GGPP) to the tricyclic cyclooctat-9-en-7-ol, which is characterized by a 5-8-5-fused ring skeleton. We have previously proposed a cyclization cascade involving a unique carbon-carbon bond rearrangement combined with multiple hydride shifts, all occurring at a single active site. Here, we report the first high-resolution X-ray crystal structure of CotB2 with bound substrate analog geranylgeranyl thiodiphosphate (GGSPP). In the GGSPP-bound form, GGSPP folds into a unique S-shaped conformation that probably reflects the substrate-bound state prior to ionization of the substrate GGPP. The folded framework of GGSPP is surrounded by hydrophobic residues and several aromatic and asparagine residues that are well-positioned to stabilize a series of reactive carbocation intermediates through a combination of cation-π and dipole charge interactions. The combined crystal structures and mutagenesis-based biochemical assays provide a structural basis for exquisite control of ring formation and stereochemistry during CotB2 catalysis.