The alkylating warhead of the pancreatic cancer drug streptozotocin (SZN) contains an N-nitrosourea moiety constructed from N-omega-methyl-L-arginine (L-NMA) by the multi-domain metalloenzyme SznF. The enzyme's central heme-oxygenase-like (HO-like) domain sequentially hydroxylates N-delta and N-omega' of L-NMA. Its C-terminal cupin domain then rearranges the triply modified arginine to N-delta-hydroxy-N-omega'-methyl-N-omega-nitroso-L-citrulline, the proposed donor of the functional pharmacophore. Here we show that the HO-like domain of SznF can bind Fe(II) and use it to capture O-2, forming a peroxo-Fe-2 (III/III) intermediate. This intermediate has absorption- and Mossbauer-spectroscopic features similar to those of complexes previously trapped in ferritin-like diiron oxidases and oxygenases (FDOs) and, more recently, the HO-like fatty acid oxidase UndA. The SznF peroxo-Fe-2 (III/III) complex is an intermediate in both hydroxylation steps, as shown by the concentration-dependent acceleration of its decay upon exposure to either L-NMA or N-delta-hydroxy-N-omega-methyl-L-Arg (L-HMA). The Fe-2(III/III) cluster produced upon decay of the intermediate has a small Mossbauer quadrupole splitting parameter, implying that, unlike the corresponding product states of many FDOs, it lacks an oxo-bridge. The subsequent decomposition of the product cluster to one or more paramagnetic Fe(III) species over several hours explains why SznF was previously purified and crystallographically characterized without its cofactor. Programmed instability of the oxidized form of the cofactor appears to be a unifying characteristic of the emerging superfamily of HO-like diiron oxidases and oxygenases (HDOs).