peer review - Responding to a reviewer who misunderstood key concepts of a paper

How do you respond to a reviewer who is very critical about your paper but from whose comments you can easily see that he/she has misunderstood the key concepts of the paper?

In my case, the first reviewer had no issues with the paper and suggested only a minor revision. But the second reviewer seems to have not spent too much time on understanding the paper. This reviewer's misunderstanding made the editor suggest a major revision of the paper.

In my response to the reviewer (not sent yet), I used the sentence "This comment completely misrepresent the methodology described in the paper." Is this too much?

UPDATE: I am glad to inform you all that after the second round of reviews, the paper was accepted with minor revisions. I followed the general advice given in the accepted answer for this post. Instead of being too defensive, I agreed in my response to the reviewer that the misunderstanding may be due to wording of certain sentences and changed them. Specifically, I used the following sentence:

"There seems to be a misunderstanding about the methodology, which we hope to clear through our responses below and by revising the text in the manuscript. Contrary to what the reviewer states, ..."

Hope this update helps someone in future.

Answer

This comment completely misrepresent the methodology described in the paper.

While it may be technically correct, it is unnecessarily undiplomatic (at least all by itself), as it implicitly places blame on the reviewer for not correctly understanding your paper. Again, if the respective points were made unmistakably clear in the paper (which is something that you can easily overestimate), this blame may be justified, but still you risk unnecessarily disgruntling the reviewer.

I would suggest to assume in good faith that the reviewer did not fail to understand your paper due to incompetence or laziness, but because you failed to clarify a certain aspects. Try to improve your paper regarding the explanation of everything that the reviewer misunderstood and reply with something along the lines of:

This comment seems to be based on the assumption that we were proposing a method to transmogrify apples. However, the goal of our method is the transmogrification of bananas – an aspect, which we have failed to make sufficiently clear. We have amended our manuscript accordingly and now write: […]

Do not worry, if the respective revision turns out to be only minor.

To be prepared if the reviewer insists on his or her misunderstandings, I suggest to explicitly state in your response letter that something different is the case. This way you hopefully have some good argument for the editor in this case.

^{I once had a similar experience with a reviewer who criticised that we made several claims which were not supported by our studies. However, we never made any of these claims. In a first revision we reformulated a few sentences that the reviewer had presumably misunderstood and explicitly stated in the response letter that we did not make those claims. The reviewer criticised again that some of the same claims were unsupported. We responded again that we never made those claims and reformulated a handful of sentences. Then either the reviewer finally understood or the editor was fed up with this and the paper was accepted. In both cases, major revisions were requested.}