Microbial activity is a critical factor controlling methylmercury formation in aquatic environments. Microbial communities were isolated from sediments of two highly mercury-polluted areas of the Tagus Estuary (Barreiro and Cala do Norte) and differentiated according to their dependence on oxygen into three groups: aerobic, anaerobic, and sulphate-reducing microbial communities. Their potential to methylate mercury and demethylate methylmercury was evaluated through incubation with isotope-enriched Hg species (199HgCl and CH3201HgCl). The results showed that the isolated microbial communities are actively involved in methylation and demethylation processes. The production of CH3199Hg was positively correlated with sulphate-reducing microbial communities, methylating up to 0.07% of the added 199Hg within 48 h of incubation. A high rate of CH3201Hg degradation was observed and >20% of CH3201Hg was transformed. Mercury removal of inorganic forms was also observed. The results prove the simultaneous occurrence of microbial methylation and demethylation processes and indicate that microorganisms are mainly responsible for methylmercury formation and accumulation in the polluted Tagus Estuary.