Combined QM/MM molecular dynamics simulations have been carried out for the dehalogenation reaction of the nucleophilic displacement of dichloroethane catalyzed by haloalkane dehalogenase. The computed chlorine kinetic isotope effects and free energies of activation in the wild-type and the Phe172Trp mutant enzyme are found to be consistent with experiment. In comparison with the uncatalyzed model reaction in water, the enzyme lowers the activation barrier by about 16 kcal/mol. The enormous enzymatic action was attributed to a combination of contributions from a change in the solvation effect and transition state stabilization. The unique features of tryptophan's ability to interact favorably with hydrophobic substrates and to form hydrogen bonds to the leaving group chloride ion at the transition state enable both factors to make significant contributions to the barrier lowering mechanism in the enzyme. This is in contrast to the reference reaction in water, in which hydrogen bonding interactions are weakened at the transition state because of dispersed charge distribution at the transition state relative to that in the reactant and product states.