Factor D is a serine protease essential for the activation of the alternative pathway of complement. The structures of native factor D and a complex formed with isatoic anhydride inhibitor were determined at resolution of 2.3 and 1.5 Å, respectively, in an isomorphous monoclinic crystal form containing one molecule per asymmetric unit. The native structure was compared with structures determined previously in a triclinic cell containing two molecules with different active site conformations. The current structure shows greater similarity with molecule B in the triclinic cell, suggesting that this may be the dominant factor D conformation in solution. The major conformational differences with molecule A in the triclinic cell are located in four regions, three of which are close to the active site and include some of the residues shown to be critical for factor D catalytic activity. The conformational flexibility associated with these regions is proposed to provide a structural basis for the previously proposed substrate-induced reversible conformational changes in factor D. The high-resolution structure of the factor D/isatoic anhydride complex reveals the binding mode of the mechanism-based inhibitor. The higher specificity towards factor D over trypsin and thrombin is based on hydrophobic interactions between the inhibitor benzyl ring and the aliphatic side-chain of Arg218 that is salt bridged with Asp189 at the bottom of the primary specificity (S1) pocket. Comparison of factor D structural variants with other serine protease structures revealed the presence of a unique 'self-inhibitory loop'. This loop (214-218) dictates the resting-state conformation of factor D by (1) preventing His57 from adopting active tautomer conformation, (2) preventing the P1 to P3 residues of the substrate from forming anti-parallel β-sheets with the non-specific substrate binding loop, and (3) blocking the accessibility of Asp189 to the positively charged P1 residue of the substrate. The conformational switch from resting-state to active-state can only be induced by the single macromolecular substrate, C3b-bound factor B. This self-inhibitory mechanism is highly correlated with the unique functional properties of factor D, which include high specificity toward factor B, low esterolytic activity toward synthetic substrates, and absence of regulation by zymogen and serpin-like or other natural inhibitors in blood.