The high cost of enzymes for saccharification of lignocellulosic biomass is a major barrier to the production of second generation biofuels. Using a combination of genetic and biochemical techniques, we report that filamentous fungi use oxidative enzymes to cleave glycosidic bonds in cellulose. Deletion of cdh-1, the gene encoding the major cellobiose dehydrogenase of Neurospora crassa, reduced cellulase activity substantially, and addition of purified cellobiose dehydrogenases from M. thermophila to the Δcdh-1 strain resulted in a 1.6- to 2.0-fold stimulation in cellulase activity. Addition of cellobiose dehydrogenase to a mixture of purified cellulases showed no stimulatory effect. We show that cellobiose dehydrogenase enhances cellulose degradation by coupling the oxidation of cellobiose to the reductive activation of copper-dependent polysaccharide monooxygenases (PMOs) that catalyze the insertion of oxygen into C-H bonds adjacent to the glycosidic linkage. Three of these PMOs were characterized and shown to have different regiospecifities resulting in oxidized products modified at either the reducing or nonreducing end of a glucan chain. In contrast to previous models where oxidative enzymes were thought to produce reactive oxygen species that randomly attacked the substrate, the data here support a direct, enzyme-catalyzed oxidation of cellulose. Cellobiose dehydrogenases and proteins related to the polysaccharide monooxygenases described here are found throughout both ascomycete and basidiomycete fungi, suggesting that this model for oxidative cellulose degradation may be widespread throughout the fungal kingdom. When added to mixtures of cellulases, these proteins enhance cellulose saccharification, suggesting that they could be used to reduce the cost of biofuel production.