The fundamental reaction mechanism of cytochrome P450 2A6 (CYP2A6)-catalyzed N-methylhydroxylation of (S)-(−)-nicotine and the free energy profile have been studied by performing pseudobond first-principles quantum mechanical/molecular mechanical (QM/MM) reaction-coordinate calculations. In the CYP2A6-(S)-(−)-nicotine binding structures that allow for 5′-hydroxylation, the N-methyl group is also sufficiently close to the oxygen of Cpd I for the N-methylhydroxylation reaction to occur. It has been demonstrated that the CYP2A6-catalyzed N-methylhydroxylation reaction is a concerted process involving a hydrogen-transfer transition state on both the quartet and the doublet states. The N-methylhydroxylation reaction proceeds mainly in the doublet state, since the free energy barriers on the doublet state are lower than the corresponding ones on the quartet state. The calculated free energy barriers indicate that (S)-(−)-nicotine oxidation catalyzed by CYP2A6 proceeds with a high regioselective abstraction of the hydrogen at the 5′-position, rather than the hydrogen at the N-methyl group. The predicted regioselectivity of 93% is in agreement with the most recent experimentally reported regioselectivity of 95%. The binding mode of (S)-(−)-nicotine in the active site of CYP2A6 is an important determinant for the stereoselectivity of nicotine (S)-(−)-oxidation, whereas the regioselectivity of (S)-(−)-nicotine oxidation is determined mainly by the free energy barrier difference between the 5′-hydroxylation and N-methylhydroxylation reactions.