We report the generation and characterization of a diiron(III) intermediate formed during reaction with dioxygen of the reduced hydroxylase component of toluene/o-xylene monooxygenase from Pseudomonas sp. OX1. The decay rate of this species is accelerated upon mixing with phenol, a substrate for this system. Under steady-state conditions, hydrogen peroxide was generated in the absence of substrate. The oxidized hydroxylase also decomposed hydrogen peroxide to liberate dioxygen in the absence of reducing equivalents. This activity suggests that dioxygen activation may be reversible. The linear free energy relationship determined from hydroxylation of para-substituted phenols under steady-state turnover has a negative slope. A value of rho < 0 is consistent with electrophilic attack by the oxidizing intermediate on the aromatic substrates. The results from these steady and pre-steady-state experiments provide compelling evidence that the diiron(III) intermediate is the active oxidant in the toluene/o-xylene monooxygenase system and is a peroxodiiron(III) transient, despite differences between its optical and Mössbauer spectroscopic parameters and those of other peroxodiiron(III) centers.