While oat (Avena sativa) has long been known to produce epoxy fatty acids in seeds, synthesized by a peroxygenase pathway, the gene encoding the peroxygenase remains to be determined. Here we report identification of a peroxygenase cDNA AsPXG1 from developing seeds of oat. AsPXG1 is a small protein with 249 amino acids in length and contains conserved heme-binding residues and a calcium-binding motif. When expressed in Pichia pastoris and Escherichia coli, AsPXG1 catalyzes the strictly hydroperoxide-dependent epoxidation of unsaturated fatty acids. It prefers hydroperoxy-trienoic acids over hydroperoxy-dienoic acids as oxygen donors to oxidize a wide range of unsaturated fatty acids with cis double bonds. Oleic acid is the most preferred substrate. The acyl carrier substrate specificity assay showed phospholipid and acyl-CoA were not effective substrate forms for AsPXG1 and it could only use free fatty acid or fatty acid methyl esters as substrates. A second gene, AsLOX2, cloned from oat codes for a 9-lipoxygenase catalyzing the synthesis of 9-hydroperoxy-dienoic and 9-hydroperoxy-trienoic acids, respectively, when linoleic (18:2-9c,12c) and linolenic (18:3-9c,12c,15c) acids were used as substrates. The peroxygenase pathway was reconstituted in vitro using a mixture of AsPXG1 and AsLOX2 extracts from E. coli. Incubation of methyl oleate and linoleic acid or linolenic acid with the enzyme mixture produced methyl 9,10-epoxy stearate. Incubation of linoleic acid alone with a mixture of AsPXG1 and AsLOX2 produced two major epoxy fatty acids, 9,10-epoxy-12-cis-octadecenoic acid and 12,13-epoxy-9-cis-octadecenoic acid, and a minor epoxy fatty acid, probably 12,13-epoxy-9-hydroxy-10-transoctadecenoic acid. AsPXG1 predominately catalyzes intermolecular peroxygenation.