Involved in the caffeine degradation, which is the essential first step for assimilating the carbon and nitrogen in caffeine. Catalyzes the N1-demethylation of caffeine to produce theobromine and formaldehyde. Also catalyzes the N1-demethylation of theophylline, paraxanthine, and 1-methylxanthine to 3-methylxanthine, 7-methylxanthine, and xanthine, respectively. NADH is the preferred substrate. caffeine + H(+) + NADH + O2 = formaldehyde + H2O + NAD(+) + theobromine caffeine + H(+) + NADPH + O2 = formaldehyde + H2O + NADP(+) + theobromine H(+) + NADH + O2 + theophylline = 3-methylxanthine + formaldehyde + H2O + NAD(+) H(+) + NADPH + O2 + theophylline = 3-methylxanthine + formaldehyde + H2O + NADP(+) 1,7-dimethylxanthine + H(+) + NADH + O2 = 7-methylxanthine + formaldehyde + H2O + NAD(+) 1,7-dimethylxanthine + H(+) + NADPH + O2 = 7-methylxanthine + formaldehyde + H2O + NADP(+) Binds 1 [2Fe-2S] cluster per subunit. kcat is 190 min(-1) for caffeine (at pH 7.5 and 30 degrees Celsius). Optimum pH is 7.5. Optimum temperature is 30 degrees Celsius. Alkaloid degradation.