Computations based on density functional theory are carried out to examine the mechanism of photocatalytic oxidation of methane to methanol with H2O2 as oxidant and water as co-catalyst over anatase TiO2 (101) surface. The reaction proceeds with hydrogen abstraction from methane followed by the formation of surface methoxy species, which is reduced to methanol. We compare the reaction energetics for C-H dissociation in the presence and absence of surface defect, but find no discernible impact of O-vacancy on methane oxidation. In comparison, hydroxyl produced as a result of H2O2 or H2O photo-decomposition dramatically reduces the barrier for CH3-H bond cleavage. The reaction proceeds further by the reduction of surface methoxy group and is the rate-limiting step for methanol formation. Additionally, we find that methyl can also react with water to form methanol with a considerably lower barrier, suggesting an active involvement of water for methanol formation. We also study the role of water as a co-catalyst and observe significant reduction in barriers, facilitated by alternate pathway for proton transfer. The reaction pathways presented provide valuable in- sights into the mechanism of methane oxidation in the presence of H2O2 as oxidant and demonstrate the rate-enhancing role of water for these steps.