Nitrogen (N2) gas in the atmosphere is partially replenished by microbial denitrification of ammonia. Recent study has shown that Alcaligenes ammonioxydans oxidizes ammonia to dinitrogen via a process featuring the intermediate hydroxylamine, termed “Dirammox” (direct ammonia oxidation). However, the unique biochemistry of this process remains unknown. Here, we report an enzyme involved in Dirammox that catalyzes the conversion of hydroxylamine to N2. We tested previously annotated proteins involved in redox reactions, DnfA, DnfB, and DnfC, to determine their ability to catalyze the oxidation of ammonia or hydroxylamine. Our results showed that none of these proteins bound to ammonia or catalyzed its oxidation; however, we did find DnfA bound to hydroxylamine. Further experiments demonstrated that, in the presence of NADH and FAD, DnfA catalyzed the conversion of 15N-labeled hydroxylamine to 15N2. This conversion did not happen under oxygen (O2)-free conditions. Thus, we concluded that DnfA encodes a hydroxylamine oxidase. We demonstrate that DnfA is not homologous to any known hydroxylamine oxidoreductases and contains a diiron center, which was shown to be involved in catalysis via electron paramagnetic resonance experiments. Furthermore, enzyme kinetics of DnfA were assayed, revealing a Km of 92.9 ± 3.0 μM for hydroxylamine and a kcat of 0.028 ± 0.001 s−1. Finally, we show that DnfA was localized in the cytoplasm and periplasm as well as in tubular membrane invaginations in HO-1 cells. To the best of our knowledge, we conclude that DnfA is the first enzyme discovered that catalyzes oxidation of hydroxylamine to N2.