A methane-oxidizing bacterium capable of nitrogen fixation was isolated from soil taken from an area which leaked methane gas. Strain T-1 was a catalase and oxidase-positive, gram-negative straight rod-shaped strictly aerobic bacterium which formed lipid cysts and type II intracytoplasmic membranes. The organism was a microaerophilic nitrogen-fixing methanotroph. Strain T-1 is considered to be classified into Methylocystis. The organism evolved hydrogen gas when grown in the nitrogen-free medium of atmospheric oxygen concentrations of 1.5% or more. Below this level, however, hydrogen gas was not evolved. In addition to methanol, formaldehyde and formate, ethanol, acetate and hydrogen gas served as oxidizable substrates for the acetylene reduction test. H2-stimulated nitrogenase activity was limited in a very narrow range of oxygen concentration and not detected at 2% O2. With acetate as the substrate, however, about an 80% of the maximum acetylene reduction activity was detected at 2% O2. These results suggest that strain T-1 is capable of recycling the hydrogen gas evolved during nitrogen fixation under low partial pressures of O2.