During gliotoxin biosynthesis in fungi, the cytochrome P450 GliF enzyme catalyzes an unusual C-N ring-closure step while also an aromatic ring is hydroxylated in the same reaction cycle, which may have relevance to drug synthesis reactions in biotechnology. However, as the details of the reaction mechanism are still controversial, no applications have been developed yet. To resolve the mechanism of gliotoxin biosynthesis and gain insight into the steps leading to ring-closure, we ran a combination of molecular dynamics and density functional theory calculations on the structure and reactivity of P450 GliF and tested a range of possible reaction mechanisms, pathways and models. The calculations show that, rather than hydrogen atom transfer from the substrate to Compound I, an initial proton transfer transition state is followed by a fast electron transfer en route to the radical intermediate, and hence a non-synchronous hydrogen atom abstraction takes place. The radical intermediate then reacts by OH rebound to the aromatic ring to form a biradical in the substrate that, through ring-closure between the radical centers, gives gliotoxin products. Interestingly, the structure and energetics of the reaction mechanisms appear little affected by the addition of polar groups to the model and hence we predict that the reaction can be catalyzed by other P450 isozymes that also bind the same substrate. Alternative pathways, such as a pathway starting with an electrophilic attack on the arene to form an epoxide, are high in energy and are ruled out.