Polypeptide GalNAc-transferase T3 (GalNAc-T3) regulates fibroblast growth factor 23 (FGF23) by O-glycosylating Thr178 in a furin proprotein processing motif RHT¹⁷⁸R↓S. FGF23 regulates phosphate homeostasis and deficiency in GALNT3 or FGF23 results in hyperphosphatemia and familial tumoral calcinosis. We explored the molecular mechanism for GalNAc-T3 glycosylation of FGF23 using engineered cell models and biophysical studies including kinetics, molecular dynamics and X-ray crystallography of GalNAc-T3 complexed to glycopeptide substrates. GalNAc-T3 uses a lectin domain mediated mechanism to glycosylate Thr178 requiring previous glycosylation at Thr171. Notably, Thr178 is a poor substrate site with limiting glycosylation due to substrate clashes leading to destabilization of the catalytic domain flexible loop. We suggest GalNAc-T3 specificity for FGF23 and its ability to control circulating levels of intact FGF23 is achieved by FGF23 being a poor substrate. GalNAc-T3’s structure further reveals the molecular bases for reported disease-causing mutations. Our findings provide an insight into how GalNAc-T isoenzymes achieve isoenzyme-specific nonredundant functions.