In Lake Matano, Indonesia, the world’s largest known ferruginous basin, more than 50% of authigenic organic matter is degraded through methanogenesis, despite high abundances of Fe (hydr)oxides in the lake sediments. Biogenic CH4 accumulates to high concentrations (up to 1.4 mmol L−1) in the anoxic bottom waters, which contain a total of 7.4 × 105 tons of CH4. Profiles of dissolved inorganic carbon (ΣCO2) and carbon isotopes (δ13C) show that CH4 is oxidized in the vicinity of the persistent pycnocline and that some of this CH4 is likely oxidized anaerobically. The dearth of NO3− and SO42− in Lake Matano waters suggests that anaerobic methane oxidation may be coupled to the reduction of Fe (and/or Mn) (hydr)oxides. Thermodynamic considerations reveal that CH4 oxidation coupled to Fe(III) or Mn(III/IV) reduction would yield sufficient free energy to support microbial growth at the substrate levels present in Lake Matano. Flux calculations imply that Fe and Mn must be recycled several times directly within the water column to balance the upward flux of CH4. 16S gene cloning identified methanogens in the anoxic water column, and these methanogens belong to groups capable of both acetoclastic and hydrogenotrophic methanogenesis. We find that methane is important in C cycling, even in this very Fe-rich environment. Such Fe-rich environments are rare on Earth today, but they are analogous to conditions in the ferruginous oceans thought to prevail during much of the Archean Eon. By analogy, methanogens and methanotrophs could have formed an important part of the Archean Ocean ecosystem.