The Langevin dipole (LD) solvent model is used with the AM1 semiempirical quantum mechanical method to compare reaction pathways in the gas phase and in polar solution for phenyl acetate cleavage by hydroxide ion and by beta-cyclodextrin. The gas-phase results show that nucleophilic substitution at the acyl carbon atom of phenyl acetate by the hydroxide ion exhibits a downhill potential profile. The introduction of solvent effects using the LD model results in correct reproduction of the experimental values for the activation barrier and the heat of hydrolysis. The reaction of the alkoxide ion of cyclodextrin with bound phenyl acetate in the gas phase is found to have a positive energy of activation, which is further increased in the presence of polar solvent. The results show that acylation at the S’-hydroxyl of cyclodextrin is favored over the 2’-position by about 15 kcal/mol due to less structural reorganization of the macrocycle during hydrolysis at the S’-site. The results also show that attack at the 3’-hydroxyl lowers the activation energy barrier by about 10 kcal/mol compared to attack by hydroxide ion in solution. The results are discussed in terms of the known physicochemical properties of cyclodextrins and their inclusion complexes.