The current hypothesis for the formation of the catalytically active compound I of peroxidases from the resting state and peroxide involves formation of a reversible "inner-sphere" complex in which the peroxide is bound to the heme iron. It is this precursor that is postulated to then form compound I. However, this crucial putative transient intermediate has not yet been definitively detected or characterized by experimental methods. We report here the use of energy minimization and molecular dynamics simulation together with the known X-ray structure of cytochrome c peroxidase to investigate the nature of this complex and comparisons of it with the resting state in which a water is bound as a ligand. Among the properties monitored in these simulations are the mode of binding of the peroxide to the heme iron, its interactions with neighboring amino acid residues, and the extent to which the binding of the peroxide perturbs both the local environment around the heme unit and more distant regions. The results of this study indicate that solvated, full protein dynamics is required to obtain reliable results for the known resting-state complex and hence for the uncharacterized peroxide complex. In this complex, the peroxide binds to the heme iron in a dynamically averaged end-on fashion, rather than a bridged structure, with approximately equal probability of each oxygen serving as the ligand to the iron. Binding of the peroxide as a ligand disrupts the H-bonded network of waters in the distal binding pocket which are present in the resting state, but there is no dramatic perturbation of the nearby amino acid residues. The peroxide hydrogen forms a stable H-bond with the Nepsilon of His52, and the peroxide oxygen is quite near the HNepsilon of Arg48. These results provide additional evidence for the postulated role of these two residues in the O-O bond scission of the peroxide complex to form compound 1. On the proximal side, a stable H-bond is found between the carboxyl oxygens of the nearby Asp235 and both the proximal His ligand and the Trp191 residue that is stacked over it, providing further evidence that the imidazole is deprotonated. In addition to an "inner-sphere" peroxide complex, very preliminary indication is found for the formation of an "outersphere" precursor complex, in which the peroxide is bound near a highly conserved residue, Pro145 in the distal pocket, but not as a ligand of the heme iron.