The metabolic transformation of antirheumatic fluorescent drug leflunomide into its active metabolite teriflunomide through isoxazole ring opening has been monitored in vitro using steady state and time domain fluorescence spectroscopy and density functional theory. During metabolic reaction, absorption of leflunomide split into two bands resembling absorption spectra of teriflunomide. The fluorescence spectra reveal slow conversion of leflunomide to E and Z forms of teriflunomide in aqueous medium, which becomes faster at basic pH. The E form, which is more potent as a drug, becomes more stable with an increase in the basicity of the medium. Both molecules are associated with charge transfer due to twisting in the lowest singlet excited state. Excited state charge transfer followed by proton transfer was also observed in the Z form during the ring opening of leflunomide. Quantum yield and radiative decay rates have been observed to decrease for the metabolite because of an increase in nonradiative decay channels.