Lytic polysaccharide monooxygenases (LPMOs) are Cu-containing enzymes that facilitate the degradation of recalcitrant polysaccharides by the oxidative cleavage of glycosidic bonds. They are gaining rapidly increasing attention as key players in biomass conversion, especially for the production of second-generation biofuels. Elucidation of the detailed mechanism of the LPMO reaction is a major step toward the assessment and optimization of LPMO efficacy in industrial biotechnology, paving the way to utilization of sustainable fuel sources. Here, we used density functional theory calculations to study the reaction pathways suggested to date, exploiting a very large active-site model for a fungal AA9 LPMO and using a celloheptaose unit as a substrate mimic. We identify a copper oxyl intermediate as being responsible for H-atom abstraction from the substrate, followed by a rapid, water-assisted hydroxyl rebound, leading to substrate hydroxylation.