Serine hydroxymethyltransferase (SHMT) is a pyridoxal phosphate (PLP)-dependent enzyme that catalyzes the reversible conversion of serine and tetrahydrofolate (THF) to glycine and 5,10-methylene THF. SHMT is a folate pathway enzyme and is therefore of considerable medical interest due to its role as an important intervention point for antimalarial, anticancer, and antibacterial treatments. Despite considerable experimental effort, the precise reaction mechanism of SHMT remains unclear. In this study, we explore the mechanism of SHMT to determine the roles of active site residues and the nature and the sequence of chemical steps. Molecular dynamics (MD) methods were employed to generate a suitable starting structure which then underwent analysis using hybrid quantum mechanical/molecular mechanical (QM/MM) simulations. The QM region consisted of 12 key residues, two substrates, and explicit solvent. Our results show that the catalytic reaction proceeds according to a retro-aldol synthetic process with His129 acting as the general base in the reaction. The rate-determining step involves the cleavage of the PLP-serine aldimine C-alpha-C-beta bond and the formation of formaldehyde in line with experimental evidence. The pyridyl ring of the PLP-serine aldimine substrate exists in deprotonated form, being stabilized directly by Asp208 via a strong H-bond, as well as through interactions with Arg371, Lys237, and His211, and with the surrounding protein which was electrostatically embedded. This knowledge has the potential to impact the design and development of new inhibitors.