The reaction mechanism for the formation of the hydroxylating intermediate in aromatic amino acid hydroxylases (i.e., phenylalanine hydroxylase, tyrosine hydroxylase, tryptophan hydroxylase) was investigated by means of hybrid density functional theory. These enzymes use molecular oxygen to hydroxylate both the tetrahydrobiopterin cofactor and the aromatic amino acid. A mechanism is proposed in which dioxygen forms a bridging bond between the cofactor and iron. The product is an iron(II)-peroxy-pterin intermediate, and iron was found to be essential for the catalysis of this step. No stable intermediates involving a pterin radical cation and a superoxide ion O(2)(-) were found on the reaction pathway. Heterolysis of the O-O bond in the iron(II)-peroxy-pterin intermediate is promoted by one of the water molecules coordinated to iron and releases hydroxypterin and the high-valent iron oxo species Fe(IV)=O, which can carry out subsequent hydroxylation of aromatic rings. In the proposed mechanism, the formation of the bridging C-O bond is rate-limiting in the formation of Fe(IV)=O.