QM/MM calculations are used to elucidate the Poulos-Kraut (Poulos, T. L.; Kraut, J. J. Biol. Chem. 1980, 255, 8199-8205) mechanism of O-O bond activation and Compound I (Cpd I) formation in HRP, in conditions corresponding to neutral to basic pH. Attempts to generate Compound I directly from the Fe( H2O2) complex by migrating the proton from the proximal oxygen to the distal one (1,2-proton shift) result in high barriers. The lowest energy mechanism was found to involve initial deprotonation of ferric hydrogen peroxide complex ( involving spin crossover from the quartet to the doublet state) by His42 to form ferric-hydroperoxide ( Cpd 0). Subsequently, the distal OH group of Cpd 0 is pulled by Arg38 and reprotonated by His42(H+) to form Cpd I and a water molecule that bridges the two residues. The structures of the intermediate and the transition state reveal the manner by which the Arg-His residues promote cooperatively the electronic reorganization that is required to attend the heterolytic O-O cleavage.