Hydroxymandelate synthase (HMS) and 4-hydroxyphenylpyruvate dioxygenase (HPPD) are highly related enzymes using the same substrates but catalyzing hydroxylation reactions yielding different products. The first steps of the HMS and HPPD catalytic reactions are believed to proceed in the same way and lead to an Fe(IV)═O-hydroxyphenylacetate (HPA) intermediate. Further down the catalytic cycles, HMS uses Fe(IV)═O to perform hydroxylation of the benzylic carbon, whereas in HPPD, the reactive oxoferryl intermediate attacks the aromatic ring of HPA. This study focuses on this part of the HMS catalytic cycle that starts from the oxoferryl intermediate and aims to identify interactions within the active site that are responsible for enzyme specificity. To this end, a HMS-Fe(IV)═O-HPA complex was modeled with molecular dynamics simulations. On the basis of the molecular dynamics-equilibrated structure, an active site model suitable for quantum chemical investigations was constructed and used for density functional theory (B3LYP) calculations of the mechanism of the native reaction of HMS, i.e., benzylic hydroxylation, and the alternative electrophilic attack on the ring, which is a step of the HPPD catalytic cycle. The most important result of this study is the finding that the conformation of the Ser201 side chain in the second coordination shell has a key role in directing the reaction of Fe(IV)═O into either the HMS or the HPPD channel.