Relative solvation and binding free energies were calculated for a series of fructose-1,6-bisphosphatase inhibitors using a free energy perturbation (FEP) method that uses quantum mechanics (QM) for treating the inhibitors and molecular mechanics (MM) for treating the surroundings (solvent and protein). Accuracy was similar to or better than a conventional FEP method, but CPU requirements were 5-fold greater. The QM/MM method was also used to assess the molecular factors responsible for the > 2000-fold decrease in the inhibitory potency for the AMP analogue wherein the 5'-oxygen was replaced with methylene (AMP -> 4). The failure of phosphonate 4 to effectively inhibit FBPase led to an alternative design strategy that ultimately produced a series of phosphonates that inhibit FBPase with high potency and specificity. These results demonstrate the potential for the QM/MM-based FEP method in drug design and highlight its potential advantages over conventional FEP methods based on its ability to eliminate the need for time-consuming development of ligand-dependent MM force field parameters as well as to avoid the associated inaccuracies introduced by MM parameters derived in the absence of experimental data.