Molecular dynamics (MD) is used to study the resting state and hydrogen peroxide-bound state of Prostaglandin endoperoxide synthase-1 (PGHS-1). A water molecule, initially relatively far from the heme iron in the ferric Fe(III) oxidation state, becomes its sixth ligand. As the dynamics proceeds, this water (WL) remains close to the Fe and it hydrogen bonds to other waters. Trees of hydrogen-bonded waters form that extend from WL to the bulk solvent mainly on the distal side of the heme. WL also hydrogen bonds to typically two other water molecules in the direction away from the bulk solvent. Mutation of WL and a water hydrogen bonded to it to form H2O2 permits study of a mechanism for the formation of the catalytically active compound I (an Fe=O ferryl intermediate). In typical peroxidases. a conserved cationic histidine may be the source of a proton to transfer directly to hydrogen peroxide and initiate compound I formation. We find that the distal histidine of PGHS-I moves sufficiently far from H2O2 that this direct mechanism cannot operate. Instead, the histidine hydrogen bonds through the imidazole's epsilon Nitrogen to the oxygens of the D-propionate of the heme. In turn, this propionate hydrogen bonds to a water that can also hydrogen bond to the Fe-bound H2O2. Based on this geometry, a mechanism for compound I formation is suggested that may operate at low pH where the distal histidine should be in its cationic state.