We present the first atomic-resolution observations of permeation and gating in a K(+) channel, based on molecular dynamics simulations of the Kv1.2 pore domain. Analysis of hundreds of simulated permeation events revealed a detailed conduction mechanism, resembling the Hodgkin-Keynes "knock-on" model, in which translocation of two selectivity filter-bound ions is driven by a third ion; formation of this knock-on intermediate is rate determining. In addition, at reverse or zero voltages, we observed pore closure by a novel "hydrophobic gating" mechanism: A dewetting transition of the hydrophobic pore cavity-fastest when K(+) was not bound in selectivity filter sites nearest the cavity-caused the open, conducting pore to collapse into a closed, nonconducting conformation. Such pore closure corroborates the idea that voltage sensors can act to prevent pore collapse into the intrinsically more stable, closed conformation, and it further suggests that molecular-scale dewetting facilitates a specific biological function: K(+) channel gating. Existing experimental data support our hypothesis that hydrophobic gating may be a fundamental principle underlying the gating of voltage-sensitive K(+) channels. We suggest that hydrophobic gating explains, in part, why diverse ion channels conserve hydrophobic pore cavities, and we speculate that modulation of cavity hydration could enable structural determination of both open and closed channels.