The intrinsic reactivity of the molybdenum center in xanthine oxidase has been studied by electronic structure calculations of a molybdenum-dithiolene model, based on the crystal structure of the closely related aldehyde oxidoreductase from Desulfovibrio gigas. Using first-principles electronic structure calculations (the HF/DF B3LYP method at the LanL2DZ level), we find that the reoxidation of the substrate-reduced molybdenum center proceeds through hydration, followed by subsequent loss of two electrons. The oxidation is likely to be coupled with loss of protons first from water coordinated to Mo(IV) species to give Mo-v-OH and second from the A Mo-SH ligand of the Mo(V) species to give a Mo-VI=S species. Starting with the structure of the oxidized center and formamide as a substrate, and using (V)MP2/LanL2DZ, formalism, we identify the reaction transition state as a planar S=Mo-O ... C complex formed upon nucleophilic attack of metal-bound hydroxide on the substrate carbon atom that is to be hydroxylated. Following sp(2) --> sp(3) rehybridization of this carbon atom to create an R-chiral tetrahedral center, the transition state breaks down via hydride transfer from the substrate carbonyl carbon to the Mo=S as the dominant reaction coordinate. The reaction is completed by product dissociation and replacement by water in the metal coordination sphere. Alternative transition states, involving molybdenum-carbon bond formation, are found to be energetically and stereochemically prohibitive.