The high-valent iron-oxo species formed in the non-heme diiron enzymes have high oxidative reactivity and catalyze difficult chemical reactions. Although the hydroxylation of inert methyl groups is an industrially promising reaction, utilizing non-heme diiron enzymes as such a biocatalyst has been difficult. Here we show a three-component monooxygenase system for the selective terminal hydroxylation of α-aminoisobutyric acid (Aib) into α-methyl-D-serine. It consists of the hydroxylase component, AibH1H2, and the electron transfer component. Aib hydroxylation is the initial step of Aib catabolism in Rhodococcus wratislaviensis C31-06, which has been fully elucidated through a proteome analysis. The crystal structure analysis revealed that AibH1H2 forms a heterotetramer of two amidohydrolase superfamily proteins, of which AibHm2 is a non-heme diiron protein and functions as a catalytic subunit. The Aib monooxygenase was demonstrated to be a promising biocatalyst that is suitable for bioprocesses in which the inert C-H bond in methyl groups need to be activated.