The cytochromes P450 are versatile enzymes found in all forms of life. Most P450s use dioxygen on a heme center to activate substrates, but one class of P450s utilizes hydrogen peroxide instead. Within the class of P450 peroxygenases, the P450 OleTJE isozyme binds fatty acid substrates and converts them into a range of products through the α-hydroxylation, β-hydroxylation and decarboxylation of the substrate. The latter produces hydrocarbon products and hence can be used as biofuels. The origin of these product distributions is unclear, and, as such, we decided to investigate substrate positioning in the active site and find out what the effect is on the chemoselectivity of the reaction. In this work we present a detailed computational study on the wild-type and engineered structures of P450 OleTJE using a combination of density functional theory and quantum mechanics/molecular mechanics methods. We initially explore the wild-type structure with a variety of methods and models and show that various substrate activation transition states are close in energy and hence small perturbations as through the protein may affect product distributions. We then engineered the protein by generating an in silico model of the double mutant Asn242Arg/Arg245Asn that moves the position of an active site Arg residue in the substrate-binding pocket that is known to form a salt-bridge with the substrate. The substrate activation by the iron(IV)-oxo heme cation radical species (Compound I) was again studied using quantum mechanics/molecular mechanics (QM/MM) methods. Dramatic differences in reactivity patterns, barrier heights and structure are seen, which shows the importance of correct substrate positioning in the protein and the effect of the second-coordination sphere on the selectivity and activity of enzymes.