The molecular mechanism(s) that regulate apoptosis by caspase inhibition remain poorly understood. The main endogenous inhibitors are members of the IAP family and are exemplified by XIAP, which regulates the initiator caspase-9, and the executioner caspases-3 and -7. We report the crystal structure of the second BIR domain of XIAP (BIR2) in complex with caspase-3, at a resolution of 2.7 Å, revealing the structural basis for inhibition. The inhibitor makes limited contacts through its BIR domain to the surface of the enzyme, and most contacts to caspase-3 originate from the N-terminal extension. This lies across the substrate binding cleft, but in reverse orientation compared to substrate binding. The mechanism of inhibition is due to a steric blockade prohibitive of substrate binding, and is distinct from the mechanism utilized by synthetic substrate analog inhibitors.