The reaction mechanism of serine proteases (trypsin), which catalyze peptide hydrolysis, is studied theoretically by ab initio QM/MM electronic structure calculations combined with Molecular Dynamics-Free Energy Perturbation calculations. We have calculated the entire reaction free energy profiles of the first reaction step of this enzyme (acylation process). The present calculations show that the rate-determining step of the acylation is the formation of the tetrahedral intermediate, and the breakdown of this intermediate has a small energy barrier. The calculated activation free energy for the acylation is similar to17.8 kcal/mol at QM/MM MP2/(aug)-cc-pVDZ//HF/6-31(+)G*(*)/AMBER level, and this reaction is an exothermic process. MD simulations of the enzyme-substrate (ES) complex and the free enzyme in aqueous phase show that the substrate binding induces slight conformational changes around the active site, which favor the alignment of the reactive fragments (His57, Asp 102, and Ser195) together in a reactive orientation. It is also shown that the proton transfer from Ser195 to His57 and the nucleophilic attack of Ser195 to the carbonyl carbon of the scissile bond of the substrate occur in a concerted manner. In this reaction, protein environment plays a crucial role to lowering the activation free energy by stabilizing the tetrahedral intermediate compared to the ES complex. The polarization energy calculations show that the enzyme active site is in a very polar environment because of the polar main chain contributions of protein. Also, the ground-state destabilization effect (steric strain) is not a major catalytic factor. The most important catalytic factor of stabilizing the tetrahedral intermediate is the electrostatic interaction between the active site and particular regions of protein: the main chain NH groups in Glyl 93 and Ser195 (so-called oxyanion hole region) stabilize negative charge generated on the carbonyl oxygen of the scissile bond, and the main chain carbonyl groups in Ile212 similar to Ser214 stabilize a positive charge generated on the imidazole ring of His57.