A mechanism of heme metabolism by heme oxygenase (HO) is discussed from B3LYP density functional theory calculations. The concerted OH group attack to the alpha-carbon by the iron-hydroperoxo species is investigated using a model with full protoporphyrin IX to confirm our previous conclusion that this species does not have sufficient oxidizing power for heme oxidation (J. Am. Chem. Soc. 2004, 126, 3672). Calculated activation energies and structures of the intermediates and transition state for this process remain unchanged from those for a small model with porphine in the previous study, which shows that the inclusion of the side chain of the porphyrin ring is not essential in describing the OH group transfer. The activation barrier for a direct oxo attack to the alpha-carbon by an iron-oxo model is calculated to be 49.8 kcal/mol, the barrier height of which looks very high for the enzymatic reaction under physiological conditions. This large activation energy is due to a highly bent porphyrin structure in the transition state. However, a bridging water molecule plays an important role in reducing the porphyrin distortion in the transition state, resulting in a remarkable decrease of the activation barrier to 13.9 kcal/mol. A whole-enzyme model with about 4000 atoms is constructed to elucidate functions of the protein environment in this enzymatic reaction using QM/MM calculations. The key water molecule is fixed in the protein environment to ensure the low-barrier and regioselective heme oxidation. A water-assisted oxo mechanism of heme oxidation by heme oxygenase is proposed from these calculational results.