P450(cam) (CYP101A1) is a bacterial monooxygenase that is known to catalyze the oxidation of camphor, the first committed step in camphor degradation, with simultaneous reduction of oxygen (O2). We report that P450(cam) catalysis is controlled by oxygen levels: at high O2 concentration, P450(cam) catalyzes the known oxidation reaction, whereas at low O2 concentration the enzyme catalyzes the reduction of camphor to borneol. We confirmed, using (17)O and (2)H NMR, that the hydrogen atom added to camphor comes from water, which is oxidized to hydrogen peroxide (H2O2). This is the first time a cytochrome P450 has been observed to catalyze oxidation of water to H2O2, a difficult reaction to catalyze due to its high barrier. The reduction of camphor and simultaneous oxidation of water are likely catalyzed by the iron-oxo intermediate of P450(cam) , and we present a plausible mechanism that accounts for the 1:1 borneol:H2O2 stoichiometry we observed. This reaction has an adaptive value to bacteria that express this camphor catabolism pathway, which requires O2, for two reasons: 1) the borneol and H2O2 mixture generated is toxic to other bacteria and 2) borneol down-regulates the expression of P450(cam) and its electron transfer partners. Since the reaction described here only occurs under low O2 conditions, the down-regulation only occurs when O2 is scarce.