Cytochrome P450 enzymes (P450s) are versatile biocatalysts, which insert a molecular oxygen into inactivated C−H bonds under mild conditions. CYP105D7 from Streptomyces avermitilis has been reported as a bacterial substrate‐promiscuous P450 which catalyzes the hydroxylation of 1‐deoxypentalenic acid, diclofenac, naringenin, compactin and steroids. In this study, CYP105D7 catalyzes hydroxylation, epoxidation and dehydrogenation of capsaicin, a pharmaceutical agent, revealing its functional diversity. The kinetic parameters of the CYP105D7 oxidation of capsaicin were determined as Km=311.60±87.30 μM and kcat=2.01±0.33 min−1. In addition, we conducted molecular docking, mutagenesis and substrate binding analysis, indicating that Arg81 plays crucial role in the capsaicin binding and catalysis. To our best knowledge, this study presents the first report to illustrate that capsaicin can be catalyzed by prokaryotic P450s.