The mechanism of the oxidative cleavage catalyzed by apocarotenoid oxygenase (ACO) was studied by using a quantum chemical (DFT: B3 LYP) method. Based on the available crystal structure, relatively large models of the unusual active-site region, in which a ferrous ion is coordinated by four histidines and no negatively charged ligand, were selected and used in the computational investigation of the reaction mechanism. The results suggest that binding of dioxygen to the ferrous ion in the active site promotes one-electron oxidation of carotenoid leading to a substrate radical cation and a Fe-bound superoxide radical. Recombination of the two radicals, which can be realized in at least two different ways, yields a reactive peroxo species that subsequently evolves into either a dioxetane or an epoxide intermediate. The former easily decays into the final aldehyde products, whereas the oxidation of the epoxide to the proper products of the reaction requires involvement of a water molecule. The calculated activation barriers favor the dioxetane mechanism, yet the mechanism involving the epoxide intermediate cannot be ruled out.