Avidin-biotin is one of the strongest protein-ligand binding systems, with broad applications in biomedical science. Here we report a quantum-based computational study to help elucidate the mechanism of binding avidin to biotin (BTN1) and its close analogue, 2'-iminobiotin (BTN2). Our study reveals that electronic polarization of protein plays a critical role in stabilizing the beta sheet (Thr113-Arg122) at the binding site and makes a substantial contribution to the free energy of avidin-biotin binding. The current finding is in contradiction to the previous notion that electrostatic interaction has no effect on or makes an unfavorable contribution to the free energy of avidin-biotin binding. Our calculations also show that the difference in binding free energy of avidin to BTN1 and BTN2 is almost entirely due to the contribution of electrostatic interaction resulting from polarization-induced stabilization of a hydrogen bond between avidin and BTN1. The current result provides strong evidence that protein polarization accounts for the electrostatic contribution to binding free energy that was missing in previous studies of avidin-biotin binding.