The structure of the complex of cyclophilin A (CypA) with cyclosporin A (CsA, 1) shows a cluster of four water molecules buried at the binding interface, which is rearranged when CsA is replaced by (5-hydroxynorvaline)-2-cyclosporin (2). The thermodynamic contributions of each bound water molecule in the two complexes are explored with the inhomogeneous fluid solvation theory and molecular dynamics simulations. Water (WTR) 133 in complex 1 contributes little to the binding affinity, while WTR6 and 7 in complex 2 play an essential role in mediating protein-ligand binding with a hydrogen bond network. The calculations reveal that the rearrangement of the water molecules contributes favorably to the binding affinity, even though one of them is displaced going from ligand 1 to 2. Another favorable contribution comes from the larger protein-ligand interactions of ligand 2. However, these favorable contributions are not sufficient to overcome the unfavorable desolvation free energy change and the conformational entropy of the hydroxylpropyl group of ligand 2 in the complex, leading to a lower binding affinity of ligand 2. These physical insights may be useful in the development of improved scoring functions for binding affinity prediction.