ChaP is a non-heme iron-dependent dioxygenase belonging to the vicinal oxygen chelate (VOC) enzyme super-family that catalyzes the final alpha-pyrone ring formation in the biosynthesis of chartreusin. In contrast to other common dioxygenases, for example, 2,3-catechol dioxygenase which uses the dioxygen molecule as the oxidant, ChaP requires the flavin-activated oxygen (O-2(2-)) as the equivalent. Previous experiments showed that the ChaP-catalyzed ring rearrangement contains two successive C-C bond cleavages and one lactonization; however, the detailed reaction mechanism is unknown. In this work, on the basis of the recently obtained crystal structure of ChaP, the computational model was constructed and the catalytic mechanism of ChaP was explored by performing quantum mechanical/molecular mechanical (QM/MM) calculations. Our calculation results reveal that ChaP uses the proximal oxygen in iron-coordinated HOO- to attack the carbonyl carbon of the substrate, whereas the previous proposal that Asp49 acts as a base to deprotonate the iron-coordinated HOO- to generate O-2(2-) is unlikely. In the first stage reaction, owing to the coordination of the substrate with iron, the substrate is activated by accepting an electron from iron and the resulting oxy-radical intermediate formed by O-O cleavage can easily trigger the ring rearrangement. In the final decarboxylation, the phenolic anion of the substrate cooperatively accepts the proton of iron-coordinated HOO- to facilitate the attack of the distal oxygen, and the proton-coupled electron transfer (PCET) from the substrate to the Fe-IV=O plays a key role for the decarboxylation. These findings may provide useful information for understanding the ChaP-catalyzed oxidative rearrangement and other flavin-dependent non-heme dioxygenases.