Heparan sulfate 3-O-sulfotransferase (3-OST) transfers a sulfo group to the 3-OH position of a glucosamine saccharide unit to form 3-O-sulfated heparan sulfate. 3-O-sulfation is known to be critically important for bestowing anticoagulant activity and other biological functions of heparan sulfate. Here, we report two ternary crystal structures of 3-OST isoform 5 (3-OST-5) with 3′-phosphoadenosine-5′-phosphate (PAP) and two octasaccharide substrates. We also used 3-OST-5 to synthesize six 3-O-sulfated 8-mers. Results from the structural analysis of the six 3-O-sulfated 8-mers revealed the substrate specificity of 3-OST-5. The enzyme prefers to sulfate a 6-O-sulfo glucosamine saccharide that is surrounded by glucuronic acid over a 6-O-sulfo glucosamine saccharide that is surrounded by 2-O-sulfated iduronic acid. 3-OST-5-modified 8-mers display a broad range of anti-factor Xa activity, depending on the structure of the 8-mer. We also discovered that the substrate specificity of 3-OST-5 is not governed solely by the side chains from amino acid residues in the active site. The conformational flexibility of the 2-O-sulfated iduronic acid in the saccharide substrates also contributes to the substrate specificity. These findings advance our understanding of how to control the biosynthesis of 3-O-sulfated heparan sulfate with the desired biological activities.