Binding of dioxygen to a non-heme enzyme has been modeled using the ONIOM combined quantum mechanical/molecular mechanical (QM/MM) method. For the present system, isopenicillin N synthase (IPNS), binding of dioxygen is stabilized by 8-10 kcal/mol for a QM:MM (B3LYP:Amber) protein model compared to a quantum mechanical model of the active site only. In the protein system, the free energy change of O-2 binding is close to zero. Two major factors consistently stabilize O-2 binding. The first effect, evaluated at the QM level, originates from a change in coordination geometry of the iron center. The active-site model artificially favors the deoxy state (O-2 not bound) because it allows too-large rearrangements of the five-coordinate iron site. This error is corrected when the protein is included. The corresponding effect on binding energies is 3-6 kcal/mol, depending on the coordination mode of O-2 (side-on or end-on). The second major factor that stabilizes O-2 binding is van der Waals interactions between dioxygen and the surrounding enzyme. These interactions, 3-4 kcal/mol at the MM level, are neglected in models that include only the active site. Polarization of the active site by surrounding amino acids does not have a significant effect on the binding energy in the present system.