The mechanism of cytochrome P450(CYP)-catalyzed hydroxylation of primary amines is currently unclear and is relevant to drug metabolism; previous small model calculations have suggested two possible mechanisms: direct N-oxidation and H-abstraction/rebound. We have modeled the N-hydroxylation of (R)-mexiletine in CYP1A2 with hybrid quantum mechanics/molecular mechanics (QM/MM) methods, providing a more detailed and realistic model. Multiple reaction barriers have been calculated at the QM(B3LYP-D)/MM(CHARMM27) level for the direct N-oxidation and H-abstraction/rebound mechanisms. Our calculated barriers indicate that the direct N-oxidation mechanism is preferred and proceeds via the doublet spin state of Compound I. Molecular dynamics simulations indicate that the presence of an ordered water molecule in the active site assists in the binding of mexiletine in the active site, but this is not a prerequisite for reaction via either mechanism. Several active site residues play a role in the binding of mexiletine in the active site, including Thr124 and Phe226. This work reveals key details of the N-hydroxylation of mexiletine and further demonstrates that mechanistic studies using QM/MM methods are useful for understanding drug metabolism.