The site-selective C–H oxidation of terpenoids by P450 attracts great attention because of their wide range of biological activities. However, the binding and catalytic mechanism of P450 for the hydroxylation of complex terpenoid substrates remains elusive, which has limited the rational engineering of P450 as a biocatalyst for terpenoid biosynthesis. Here, we studied the origin of the selectivity and reactivity of P450BM3 in the hydroxylation of terpenoids by combining molecular dynamics simulations and QM/MM calculations, using artemisinin as a model compound. We found that the conformational change of the β1 sheet at the substrate entrance and the displacement of the β′ helix were critical for reshaping the binding pocket to modulate substrate entrance and positioning the C–H to be activated toward the oxidative species of P450 for the subsequent hydrogen abstraction, the rate-determining step of hydroxylation. There is a distinct linear correlation between activation barriers and reaction coordinates, indicating that reaction coordinates can be used as a facile descriptor for predicting the reactivity of P450BM3. These findings would provide valuable guidance for predicting the selectivity and reactivity of P450BM3 for the selective hydroxylation of non-native terpenoid substrates so as to prioritize the rationally designed enzymes for terpenoid biosynthesis.