There is a major controversy in cytochrome P450 chemistry regarding the nature of the active oxidant responsible for substrate monoxygenation. Part of this controversy originates from the fact that the later stages in the catalytic cycle of P450 enzymes proceed so fast that little experimental evidence is available. Early studies suggested an iron(IV)- oxo heme cation radical ([heme((+•))-Fe(IV)=O] or Compound I) as the active species able to abstract a hydrogen atom from a substrate and rebind the hydroxyl group to form an alcohol product. Such simplistic early models involving a single active species have subsequently been invalidated by several experimental studies which clearly indicates that there must be at least two active species of some description. Based on these and other data, a two-oxidant hypothesis was put forward where Compound I and its precursor in the catalytic cycle ([heme-Fe(III)-OOH]- or Compound 0) are competitive oxidants. Density functional theory studies, however, suggest an alternative hypothesis involving a two-state-reactivity scenario where Compound I has two close-lying spin states that react differently with substrates and masquerade as two distinct oxidants. These theoretical studies show that the two spin states of Compound I react with substrates via aliphatic and aromatic C-H hydroxylation, C=C epoxidation and sulfoxidation reactions, and explain experimentally observed product distributions and kinetic isotope effects. This review will give an overview of recent studies on the two-oxidant versus two-state-reactivity hypotheses and how theory contributes to the understanding of enzymatic reaction processes.