Currently, methanol is used as an aging indicator to evaluate the aging condition of transformer insulating paper. Nevertheless, the generation mechanism of methanol in vegetable oil-paper insulation is still unclear, which is not conducive to further research on methanol analysis. In this study, three types of oil-paper insulation models of palm fatty acid ester, FR3 natural ester, and mineral oil are established by reaction molecular dynamics (ReaxFF MD) simulation. Firstly, the pyrolysis products of the three oil-paper insulation systems are described. Then the methanol generation pathways are analyzed using the elemental tracing method. There are two identical elementary reactions for the production of methanol in the three types of oil-paper insulation systems. One is that the methyl produced by pyrolysis combines with the hydroxyl group separated from the cellulose to generate methanol, and the other is that the hydroxymethyl separated from the cellulose combines with free hydrogen ion to form methanol. Based on experimental and simulation results, it is demonstrated that vegetable oil produced more methanol than mineral oil as aging progressed. In addition, it is further proved that methanol is co-generated from insulating oil and cellulose-insulating paper during the pyrolysis process. In other words, the methanol produced by the oil-paper insulation system is much higher than that of a single paper/oil insulation. Furthermore, the mineral oil-paper system produced more methanol than the other two vegetable oil-paper systems are observed. Therefore, this study provides a theoretical basis for the employment of methanol in the condition assessment of transformers with different insulating oils.