UV-vis absorbance measurements and associated studies of cytochrome P450 BM-3 in complex with N-palmitoylglycine (NPG) indicate that a conformational change occurs in the active site of the complex where the terminal atoms of the ligand move from a site distant from the heme iron, as seen in the low temperature crystal structure to a site proximal to the heme iron at biological temperatures. We employ replica exchange molecular dynamics simulations to study this conformational change. The population of the proximal state is found to increase with temperature in agreement with UV-vis absorbance and NMR measurements. In addition to the conformations characterized by X-ray crystallography and computer modeling, this study shows that a new conformational state is significantly populated at room temperature. The observed increase in the population of conformations where the terminal atoms of NPG are proximal to the heme iron with increasing temperature indicates that the proximal state is stabilized by conformational entropy. A proposal for the origin of this entropic stabilization is provided on the basis of the structure of the newly identified state. We use the temperature weighted histogram (T-WHAM) method to characterize the transition state regions of the conformational ensemble and propose a mechanism of interconversion between these low free energy conformational states.