Serotonin is a hormone that is responsible for mood regultion in the brain; however, details on its biosynthetic mechanism remain controversial. Tryptophan hydroxylase catalyzes the first step in the serotonin biosynthesis in the human body, where it regio‐ and stereoselectively hydroxylates a free tryptophan (Trp) amino acid at the C5‐position. In this work, we present a computational study ranging from molecular dynamics (MD) to quantum mechanics (QM) methods, focused on the mechanism of tryptophan hydroxylase. An MD simulation on an enzyme structure with the substrate, co‐substrate and dioxygen bound reveals a tightly bound conformation of substrate and co‐substrate, while the protein's three‐dimensional structure stays virtually intact during the simulation. Subsequently, large active‐site cluster models containing more than 200 atoms were created, and oxygen atom transfer reactions were studied. The calculations predict that the co‐factor tetrahydrobiopterin binds covalently to the iron center and react with a dioxygen molecule to form an iron(IV)‐oxo species and pterin‐4a‐carbinolamine in a stepwise manner with small energy barriers (<5 kcal mol−1) along an exergonic pathway. However, the rate‐determining step, is Trp activation through a C−O activation transition state, followed by a rapid proton relay to produce 5‐hydroxy‐L‐Trp.