Nitric oxide (NO)-sensitive guanylyl-cyclase (GC) is the most important receptor for the signaling molecule NO. Activation of the enzyme is brought about by binding of NO to the prosthetic heme group. By monitoring NO-binding and catalytic activity simultaneously, we show that NO activates GC only if the reaction products of the enzyme are present. NO-binding in the absence of the products did not activate the enzyme, but yielded a nonactivated species with the spectral characteristics of the active form. Conversion of the nonactivated into the activated conformation of the enzyme required the simultaneous presence of NO and the reaction products. Furthermore, the products magnesium/cGMP/pyrophosphate promoted the release of the histidine–iron bond during NO-binding, indicating reciprocal communication of the catalytic and ligand-binding domains. Based on these observations, we present a model that proposes two NO-bound states of the enzyme: an active state formed in the presence of the products and a nonactivated state. The model not only covers the data reported here but also consolidates results from previous studies on NO-binding and dissociation/deactivation of GC.