The hybrid density functional (DFT) method B3LYP was used to study the mechanism of the methane hydroxylation reaction catalyzed by a non-heme diiron enzyme, methane monooxygenase (MMO). The key reactive compound Q of MMO was modeled by (NH2)(H2O)Fe(μ-O)2(η2-HCOO)2Fe(NH2)(H2O), I. The reaction is shown to take place via a bound-radical mechanism and an intricate change of the electronic structure of the Fe core is associated with the reaction process. Starting with I, which has a diamond-core structure with two FeIV atoms, L4FeIV(μ-O)2FeIVL4, the reaction with methane goes over the rate-determining H-abstraction transition state III to reach a bound-radical intermediate IV, L4FeIV(μ-O)(μ-OH(···CH3))FeIIIL4, which has a bridged hydroxyl ligand interacting weakly with a methyl radical and is in an FeIII−FeIV mixed valence state. This short-lived intermediate IV easily rearranges intramolecularly through a low barrier at transition state V for addition of the methyl radical to the hydroxyl ligand to give the...