Fatty acid amide hydrolase (FAAH) is a serine hydrolase that degrades anandamide, an endocannabinoid, and oleamide, a sleep-inducing lipid, and has potential applications as a therapeutic target for neurological disorders. Remarkably, FAAH hydrolyzes amides and esters with similar rates; however, the normal preference for esters reemerges when Lys142 is mutated to alanine. To elucidate the hydrolysis mechanisms and the causes behind this variation of selectivity, mixed quantum and molecular mechanics (QM/MM) calculations were carried out to obtain free-energy profiles for alternative mechanisms for the enzymatic hydrolyses. The methodology features free-energy perturbation calculations in Monte Carlo simulations with PDDG/PM3 as the QM method. For wild-type FAAH, the results support a mechanism, which features proton transfer from Ser217 to Lys142, simultaneous proton transfer from Ser241 to Ser217, and attack of Ser241 on the substrate's carbonyl carbon to yield a tetrahedral intermediate, which subsequently undergoes elimination with simultaneous protonation of the leaving group by a Lys142-Ser217 proton shuttle. For the Lys142Ala mutant, a striking multistep sequence is proposed with simultaneous proton transfer from Ser241 to Ser217, attack of Ser241 on the carbonyl carbon of the substrate, and elimination of the leaving group and its protonation by Ser217. Support comes from the free-energy results, which well reproduce the observation that the Lys142Ala mutation in FAAH decreases the rate of hydrolysis for oleamide significantly more than for methyl oleate.