C-H hydroxylation is a fundamental process. In Nature it is catalyzed by the enzyme cytochrome P450, in a still-debated mechanism that poses a major intellectual challenge for both experiment and theory; currently, the opinions keep swaying between the original single-state rebound mechanism, a two-oxidant mechanism (where ferric peroxide participates as a second oxidant, in addition to the primary active species, the high-valent iron-oxo species), and two-state reactivity (TSR) mechanism (where two spin states are involved). Recent product isotope effect (PIE) measurements for the trans-2-phenyl-methyl cyclopropane probe (1), led Newcomb and co-workers (Newcomb, M.; Aebisher, D.; Shen, R.; Esala, R.; Chandrasena, P.; Hollenberg, P.; Coon, M. J. J. Am. Chem. Soc. 2003, 125, 6064-6065) to rule out TSR in favor of the two-oxidant scenario, since the direction of the PIE was at odds with the one predicted from calculations on methane hydroxylation. The present report describes a density functional theoretical study of C-H hydroxylation of the Newcomb probe, 1, leading to rearranged (3) and unrearranged (2) products. Our study shows that the reaction occurs via TSR in which the high-spin pathway gives dominant rearranged products, whereas the low-spin pathway favors unrearranged products. The calculated PIE(2/3) values based on TSR are found to be in excellent agreement with the experimental data of Newcomb and co-workers. This match between experiment and theory makes a strong case that the reaction occurs via TSR mechanism.