LiP (lignin peroxidase) from Trametopsis cervina has an exposed catalytic tyrosine residue (Tyr181) instead of the tryptophan conserved in other lignin-degrading peroxidases. Pristine LiP showed a lag period in VA (veratryl alcohol) oxidation. However, VA-LiP (LiP after treatment with H2O2 and VA) lacked this lag, and H2O2-LiP (H2O2-treated LiP) was inactive. MS analyses revealed that VA-LiP includes one VA molecule covalently bound to the side chain of Tyr181, whereas H2O2-LiP contains a hydroxylated Tyr181. No adduct is formed in the Y171N variant. Molecular docking showed that VA binding is favoured by sandwich π stacking with Tyr181 and Phe89. EPR spectroscopy after peroxide activation of the pre-treated LiPs showed protein radicals other than the tyrosine radical found in pristine LiP, which were assigned to a tyrosine-VA adduct radical in VA-LiP and a dihydroxyphenyalanine radical in H2O2-LiP. Both radicals are able to oxidize large low-redox-potential substrates, but H2O2-LiP is unable to oxidize high-redox-potential substrates. Transient-state kinetics showed that the tyrosine-VA adduct strongly promotes (>100-fold) substrate oxidation by compound II, the rate-limiting step in catalysis. The novel activation mechanism is involved in ligninolysis, as demonstrated using lignin model substrates. The present paper is the first report on autocatalytic modification, resulting in functional alteration, among class II peroxidases.