Mercury nanoparticles are abundant in natural environments. Yet, understanding their contribution to global biogeochemical cycling of mercury remains elusive. Here, we show that microbial transformation of nanoparticulate divalent mercury can be an important source of elemental and methylmercury.Geobacter sulfurreducensPCA, a model bacterium predominant in anoxic environments (e.g., paddy soils), simultaneously reduces and methylates nanoparticulate Hg(II). Moreover, the relative prevalence of these two competing processes and the dominant transformation pathways differ markedly between nanoparticulate Hg(II) and its dissolved and bulk-sized counterparts. Notably, even when intracellular reduction of Hg(II) nanoparticles is constrained by cross-membrane transport (a rate-limiting step that also regulates methylation), the overall Hg(0) formation remains substantial due to extracellular electron transfer. With multiple lines of evidence based on microscopic and electrochemical analyses, gene knockout experiments, and theoretical calculations, we show that nanoparticulate Hg(II) is preferentially associated with c-type cytochromes on cell membranes and has a higher propensity for accepting electrons from the heme groups than adsorbed ionic Hg(II), which explains the surprisingly larger extent of reduction of nanoparticles than dissolved Hg(II) at relatively high mercury loadings. These findings have important implications for the assessment of global mercury budgets as well as the bioavailability of nanominerals and mineral nanoparticles.