Abstract Ufmylation, a protein modification by Ubiquitin-like (UBL) protein UFM1, plays a crucial role in several cellular processes including DNA damage response, protein translation and ER homeostasis. To date, little is known how the enzymes responsible for this modification coordinate their action. Here we have studied the details of UFL1 (E3) activity, its binding to UFC1 (E2), and its relation to UBA5 (E1), using a combination of structural modeling with Alphafold2, X-ray crystallography, NMR, and in vitro biochemical activity assays. Guided by an Alphafold2 model, we generated an active UFL1 fusion construct that includes its cofactor DDRGK1, and solved the first crystal structure of this critical interaction. This fusion construct also unveiled the importance of the N-terminal helix of UFL1 for its binding to UFC1, which was validated by ITC and NMR experiments. Importantly, the binding site suggested by our structural model of the UFL1-UFC1 interaction reveals a conserved interface, and suggests a competition for binding to UFC1 between UFL1 and UBA5, which we reconfirmed by NMR. Altogether, our study reveals a novel, terminal helix-mediated regulatory mechanism which coordinates the cascade of E1-E2-E3 mediated transfer of UFM1 to its substrate, and provides new leads to target this important modification. Significance statement Ufmylation is an important post-translational modification, but little is known about the mechanistic details of its machinery, and in particular how the UFM1 E3 ligase (UFL1) binds and functions together with the E2 conjugating enzyme (UFC1). We combined AlphaFold2 modeling, X-ray crystallography, NMR and biochemical experiments to reveal crucial elements that govern UFL1 activity and ufmylation. We discover a crucial role for the UFL1 N-terminal helix in binding to UFC1 and productive ufmylation. This helix competes with the E1 (UBA5) C-terminal helix for binding to UFC1. Altogether, our findings uncover a new, helix-mediated regulatory mechanism in ufmylation.