Deacetoxycephalosporin C synthase (DAOCS) is a mononuclear ferrous enzyme, which catalyzes the expansion of the five‐membered thiazolidine ring of the penicillin nucleus into the six‐membered dihydrothiazine ring of the cephalosporin nucleus. The reaction requires dioxygen and 2‐oxoglutarate as co‐substrates to create a reactive iron–oxygen intermediate (a ferryl or peroxo compound) from a ferrous iron in the active site of DAOCS. The extended family of 2‐oxoacid‐dependent ferrous enzymes, to which DAOCS belongs, possesses a common jelly roll β‐barrel fold with the ferrous iron ligated by two histidines and a carboxylate. Here we describe the high‐resolution structures of apo‐DAOCS, and of the enzyme in complex with Fe(II) and co‐substrate 2‐oxoglutarate. On the basis of the structures and the quantum‐chemical calculations, a mechanism is proposed whereby the reactive oxidizing species may be stored in a safe form within the enzyme to await the reaction with the penicillin substrate when it is available.