Activation of O-H bonds by inorganic metal-oxo complexes has been documented, but no cognate enzymatic process is known. Our mechanistic analysis of 2-hydroxyethylphosphonate dioxygenase (HEPD), which cleaves the C1-C2 bond of its substrate to afford hydroxymethylphosphonate on the biosynthetic pathway to the commercial herbicide phosphinothricin, uncovered an example of such an O-H-bond-cleavage event. Stopped-flow UV-visible absorption and freeze-quench Mössbauer experiments identified a transient iron(IV)-oxo (ferryl) complex. Maximal accumulation of the intermediate required both the presence of deuterium in the substrate and, importantly, the use of 2H2O as solvent. The ferryl complex forms and decays rapidly enough to be on the catalytic pathway. To account for these unanticipated results, a new mechanism that involves activation of an O-H bond by the ferryl complex is proposed. This mechanism accommodates all available data on the HEPD reaction.