Natural stream ecosystems throughout the world are contaminated by methylmercury, a highly toxic compound that bioaccumulates and biomagnifies in aquatic food webs. Wetlands are widely recognized as hotspots for the production of methylmercury and are often assumed to be the main sources of this neurotoxin in downstream ecosystems. However, many streams lacking wetlands in their drainage basins (e.g., montane and semiarid regions in the western United States) have significant methylmercury contamination, and the sources of methylmercury in these streams remain largely unknown. In this study, we observed substantial production of methylmercury within a highly productive stream channel in northern California (South Fork Eel River) within a drainage basin lacking wetlands. We found that in situ methylmercury production is positively related to phosphorus removal and water temperature within the stream channel, supporting hypothesized biological mediation of in situ mercury transformation. Moreover, our data suggest that epiphytic microbial communities on a dominant filamentous alga (Cladophora glomerata) could play a role in in situ methylmercury production. Because peak in situ methylmercury production coincides with the period of the highest biological productivity during summer baseflow, methylmercury produced internally may be efficiently routed into local stream food webs. Our study provides strong evidence that stream channels, especially those associated with high primary productivity, can be important for regulating the bioavailability and toxicity of this global contaminant.