Catalyses the oxidative demethylation of N,N-dimethylglycine to yield sarcosine, 5,10-methylenetetrahydrofolate and hydrogen peroxide. The oxidation of dimethylglycine is coupled to the synthesis of 5,10-methylenetetrahydrofolate through an unusual substrate channelling mechanism. This channelling occurs by non-biased diffusion of the iminium intermediate through a large solvent cavity connecting active site 1 (N-terminus) and active site 2 (C-terminus). The synthesis of 5,10-methylenetetrahydrofolate (at active site 2) prevents the accumulation of formaldehyde (not shown), formed by hydrolysis of the iminium intermediate product (at active site 1).