Penicillin-binding protein 5 (PBP 5) of Escherichia coli hydrolyzes the terminal D-Ala-D-Ala peptide bond of the stem peptides of the cell wall peptidoglycan. The mechanism of PBP 5 catalysis of amide bond hydrolysis is initial acylation of an active site serine by the peptide substrate, followed by hydrolytic deacylation of this acyl-enzyme intermediate to complete the turnover. The microscopic events of both the acylation and deacylation half-reactions have not been studied. This absence is addressed here by the use of explicit-solvent molecular dynamics simulations and ONIOM quantum mechanics/molecular mechanics (QM/MM) calculations. The potential-energy surface for the acylation reaction, based on MP2/6-31 + G(d) calculations, reveals that Lys47 acts as the general base for proton abstraction from Ser44 in the serine acylation step. A discrete potential-energy minimum for the tetrahedral species is not found. The absence of such a minimum implies a conformational change in the transition state, concomitant with serine addition to the amide carbonyl, so as to enable the nitrogen atom of the scissile bond to accept the proton that is necessary for progression to the acyl-enzyme intermediate. Molecular dynamics simulations indicate that transiently protonated Lys47 is the proton donor in tetrahedral intermediate collapse to the acyl-enzyme species. Two pathways for this proton transfer are observed. One is the direct migration of a proton from Lys47. The second pathway is proton transfer via an intermediary water molecule. Although the energy barriers for the two pathways are similar, more conformers sample the latter pathway. The same water molecule that mediates the Lys47 proton transfer to the nitrogen of the departing D-Ala is well positioned, with respect to the Lys47 amine, to act as the hydrolytic water in the deacylation step. Deacylation occurs with the formation of a tetrahedral intermediate over a 24 kcal.mol(-1) barrier. This barrier is approximately 2 kcal.mol(-1) greater than the barrier (22 kcal.mol(-1)) for the formation of the tetrahedral species in acylation. The potential-energy surface for the collapse of the deacylation tetrahedral species gives a 24 kcal.mol(-1) higher energy species for the product, signifying that the complex would readily reorganize and pave the way for the expulsion of the product of the reaction from the active site and the regeneration of the catalyst. These computational data dovetail with the knowledge on the reaction from experimental approaches.