Chymotrypsin Inhibitor 2 (CI2) is a small inhibitor that blocks the action of serine proteases by positioning a reactive loop in the protease active site. NMR studies of this inhibitor indicate that the reactive loop residues are quite rigid (high order parameters) and yet there is a shortage of the required NOE data to fully describe the structure of the loop in solution. In addition, four internal water molecules are observed in the crystal structure, resulting in an irregular sheet structure linking the ends of the reactive loop. To further understand the role of the internal water molecules and the nature of this loop region, we have performed molecular dynamics simulations of CI2 using the GROMOS force field. Simulations of 10 ns each were performed starting from two different initial conformations corresponding to the X-ray and NMR structures. Both simulations converged to a common structure. All secondary structural elements remained intact with order parameters in agreement with experiment. Loop regions displayed larger fluctuations than described by the experimental NMR order parameters. One-half of the reactive loop is supported by a hydrophilic arginine cluster and was stable during the simulations. The second half of the loop, which is supported by a hydrophobic cluster, deviated from the X-ray and NMR derived structures. This difference could be directly traced to the loss of internal water molecules during the simulation. A simulation performed with one of the internal water molecules restrained to occupy a hydration site between the two irregular sheet strands resulted in stability of both the hydrophobic cluster and the reactive loop. Hence, the internal water molecules of CI2 appear to be essential for maintaining the structure of the reactive loop, even though they are spatially well removed from the loop itself.