The viomycin biosynthesis enzyme VioC is a nonheme iron and alpha-ketoglutarate-dependent dioxygenase involved in the selective hydroxylation of L-arginine at the C-3 position for antibiotics biosynthesis. Interestingly, experimental studies showed that using the substrate analogue, namely, L-homoarginine, a mixture of products was obtained originating from C-3 hydroxylation, C-4-hydroxylation, and C-3-C-4-desaturation. To understand how the addition of one CH2 group to a substrate can lead to such a dramatic change in selectivity and activity, we decided to perform a computational study using quantum mechanical (QM) cluster models. We set up a large active-site cluster model of 245 atoms that includes the oxidant with its first-and second-coordination sphere influences as well as the substrate binding pocket. The model was validated against experimental work from the literature on related enzymes and previous computational studies. Thereafter, possible pathways leading to products and byproducts were investigated for a model containing L-Arg and one for L-homo-Arg as substrate. The calculated free energies of activation predict product distributions that match the experimental observation and give a low-energy C-3-hydroxylation pathway for L-Arg, while for L-homo-Arg, several barriers are found to be close in energy leading to a mixture of products. We then analyzed the origins of the differences in product distributions using thermochemical, valence bond, and electrostatic models. Our studies show that the C-3-H and C-4-H bond strengths of L-Arg and L-homo-Arg are similar; however, external perturbations from an induced electric field of the protein affect the relative C-H bond strengths of L-Arg dramatically and make the C-3-H bond the weakest and guide the reaction to a selective C-3-hydroxylation channel. Therefore, the charge distribution in the protein and the induced electric dipole field of the active site of VioC guides the L-Arg substrate activation to C-3-hydroxylation and disfavors the C-4-hydroxylation pathway, while this does not occur for L-homo-Arg. Tight substrate positioning and electrostatic perturbations from the second-coordination sphere residues in VioC also result in a slower overall reaction for L-Arg; however, they enable a high substrate selectivity. Our studies highlight the importance of the second-coordination sphere in proteins that position the substrate and oxidant, perturb charge distributions, and enable substrate selectivity.