Deacetoxycephalosporin C synthase (DAOCS) is a nonheme iron(II) and 2-oxoglutarate (alpha-KG)-dependent oxygenase that catalyzes the oxidative ring expansion of penicillin N (penN) to deacetoxycephalosporin C (DAOC). Earlier reported crystal structures of DAOCS indicated that the substrate penicillin binds at the same site of succinate, leading to the proposal of the unusual ping-pong mechanism. However, more recent data provided evidence of the formation of ternary DAOCS center dot alpha-KG center dot penN complex, and thus DAOCS should follow the usual consensus mechanism of alpha-KG-dependent nonheme iron(II) oxygenases. Nevertheless, how DAOCS catalyzes the ring expansion is unknown. In this paper, on the basis of the crystal structure, we constructed two reactant models and performed a series of combined quantum mechanics/molecular mechanics (QM/MM) calculations to illuminate the catalysis of DAOCS. The binding mode of substrate was found to be crucial in determining which hydrogen atom in two methyl groups is first abstracted and whether the second H-abstraction to be abstracted in the final desaturation step locates in a suitable orientation. The highly reactive Fe-IV-oxo species prefers to abstract a hydrogen atom from one of two methyl groups in penN to trigger the ring arrangement. After the H-abstraction, the generated methylene radical intermediate can easily initiate the ring arrangement. First, the C-S bond cleaves to generate a thiyl radical, which is in concert with the formation of the terminal C=C double bond; the newly generated thiyl radical then rapidly shifts to the more stable tertiary C atom to complete ring expansion. In the final step, the Fe-III-OH species abstracts the second hydrogen to give the desaturated DAOC product. During the catalysis, no active site residue is directly involved in the chemistry, which implies that the other pocket residues except the coordinate ones with iron play a role only in anchoring the substrate.