Density functional calculations are employed to investigate key intermediates of the catalytic cycle of fungal nitric oxide reductase (P450nor). The formal Fe(II)-nitroxyl species Fe(II)--NO/(-) can principally exist in the two spin-states S = 0 and S = 1. In the S = 0 case, a very covalent Fe--NO sigma bond is present, which leads to an electronic structure description that is actually intermediate between Fe(I)--NO and Fe(II)--NO(-). In contrast, the S = 1 case shows a ferrous Fe(II)--NO complex with the extra electron being stored in the pi system of the porphyrin ligand. Importantly, the Fe(II)--NO/(-) species are very basic. The electronic structures and spectroscopic properties of the corresponding N- and O-protonated forms are very different, and unequivocally show that the Mb-HNO adduct (Mb-Myoglobin) prepared by farmer and coworkers is in fact N-protonated. The presence of an axial thiolate ligand enables a second protonation leading to the corresponding Fe(IV)--NHOH- species, which is identified with the catalytically active intermediate I of P450nor. This species reacts with a second molecule of NO by initial electron transfer from NO to Fe(IV) followed by addition of NO+ forming an N--N bond. This is accompanied by an energetically very favorable intramolecular proton transfer leading to the generation of a quite stable Fe(III)--N(OH)(NOH) complex. This way, the enzyme is able to produce dimerized HNO under very controlled conditions and to prevent loss of this ligand from Fe(III). The energetically disfavoured tautomer Fe(III)--N(OH2)(NO) is the catalytically productive species that spontaneously cleaves the N--OH2 bond forming N2O and H2O in a highly exergonic reaction.