BluB is a distinct flavin destructase that catalyzes a complex oxygen-dependent conversion of reduced flavin mononucleotide (FMNH2) to form 5,6-dimethylbenzimidazole (DMB), the lower ligand of vitamin B-12. The catalyzed mechanism remains a challenge due to the discrepancy between the complexity of the conversion and the relative simplicity of the active site of BluB. In this study, we have explored the detailed conversion mechanism by using the hybrid density functional method B3LYP on an active site model of BluB consisting of 144 atoms. The results indicate that the conversion involves more than 14 sequential steps in two distinct stages. In the first stage, BluB catalyzes the incorporation of dioxygen, and the fragmentation of the isoalloxazine ring of FMNH2 to form alloxan and the ribityl dimethylphenylenediimine (DMPDI); in the second stage, BluB exploits alloxan as a multifunctional cofactor, such as a proton donor, a proton acceptor, and a hydride acceptor, to catalyze the remaining no fewer than 10 steps of the reaction. The retro-aldol cleavage of the C1'-C2' bond of DMPDI is the rate-determining step with a barrier of about 21.6 kcal/mol, which produces D-erythrose 4-phosphate (E4P) and the ring-closing precursor of DMB. The highly conserved residue Asp32 plays critical roles in multiple steps of the conversion by serving as a proton acceptor or a proton shuttle, and another conserved residue Ser167 plays its catalytic role mainly in the rate-determining step by stabilizing the protonated retro-aldol precursor. These results are consistent with the available experimental observations. More significantly, the novel intermediate-assisted mechanism not only provides significant insights into understanding the mechanism underlying the power of the simple BluB catalyzing the complex conversion of FMNH2 to DMB, but also represents a new type of intermediate-assisted multifunctional catalysis in an enzymatic reaction.