Protein effects in the activation of dioxygen by methane monooxygenase (MMO) were investigated by using combined QM/MM and broken-symmetry Density Functional Theory (DFT) methods. The effects of a novel empirical scheme recently developed by our group on the relative DFT energies of the various intermediates in the catalytic cycle are investigated. Inclusion of the protein leads to much better agreement between the experimental and computed geometric structures for the reduced form (MMOHred). Analysis of the electronic structure of MMOHred reveals that the two iron atoms have distinct environments. Different coordination geometries tested for the MMOHperoxo intermediate reveal that, in the protein environment, the mu-eta(2),eta(2) structure is more stable than the others. Our analysis also shows that the protein helps to drive reactants toward products along the reaction path. Furthermore, these results demonstrate the importance of including the protein environment in our models and the usefulness of the QM/MM approach for accurate modeling of enzymatic reactions. A discrepancy remains in our calculation of the Fe-Fe distance in our model of H-Q as compared to EXAFS data obtained several years ago, for which we currently do not have an explanation.