We report extended-basis-set electronic structure calculations with high levels of electron correlation for heterocyclic tautomerizations, augmented by a detailed analysis of the aqueous solvation free energy differences which includes both electronic and geometric relaxation in aqueous solution, according to the Austin Model 1-Solvation Model 2 (AM1–SM2). The equilibria used as test cases are the competition between the hydroxy and oxo forms of 5-hydroxyisoxazoles; these involve two oxo (keto) and two hydroxy (enol) forms. For the unsubstituted parent system, it is found that the energy differences between the two oxo forms and between oxo and hydroxy forms are both very sensitive not only to extending the basis sets and including electron correlation but also to including electron correlation at levels higher than second order, indicating the difficulty of treating sp2 and sp3 centers on an equal footing in ring systems. We also find that treatments of electrostatic components of solvation free energies based on the popular Onsager model underestimate the solvation energy of the syn-hydroxy form because local bond moments have significant effects on the bulk electric polarization even when they largely cancel in the net dipole moment. Finally we note that there is a significant difference in first-hydration-shell effects for the oxo and hydroxy forms over and above that accounted for by electrostatic polarization. The effects of methyl substitution on the isoxazole ring are explored, and the calculated equilibrium shifts are consistent with available experimental data, which are thereby explained in terms of a combination of changes in both the gas-phase and solvation free energies.