beta-Glucosidases (beta gls) from glycoside hydrolase family 3 play an important role in biomass degradation by catalyzing cellobiose hydrolysis. However, the hydrolysis rate decreases when the glucose product or another cellobiose competes with water to form oligosaccharides in a reaction called transglycosylation. Both reactions involve proton transfer to the acid/base residue and nucleophilic attack on the glycosyl-enzyme intermediate. To gain a deeper understanding of these competing reactions, quantum mechanics/molecular mechanics calculations were performed. Although both reactions are exothermic and have similar free-energy barriers (similar to 18 kcal/mol), the transitionstate (TS) characteristics are different. The glycosyl-water bond is nearly formed in the hydrolysis TS, leading to reduced ionic character and a C-4(1) chair conformation. The transglycosylation TS is more positively charged and adopts the H-4(3) half-chair conformation because bond formation is less advanced. Water interacts solely with acid/base residue E441, though the long distance between them (2.1 angstrom) suggests that E441 does not activate water for nucleophilic attack. In comparison, a glucose acceptor has a lower deprotonation enthalpy and hydrogen bonds to E441 (1.6 angstrom) as well as to Y204, R169, and R67. Knowledge of these factors that are relevant to TS formation and stability is valuable for engineering beta gls with enhanced hydrolytic activity for industrial applications.