By using a combined quantum-mechanical and molecular-mechanical potential in molecular dynamics simulations, we have investigated the effects of the enzyme electric field of dihydrofolate reductase on the electronic polarization of its 5-protonated dihydrofolate substrate at various stages of the catalyzed hydride transfer reaction. Energy decomposition of the total electrostatic interaction energy between the ligands and the enzyme shows that the polarization effect is 4% of the total electrostatic interaction energy, and, significantly, it accounts for 9kcal/mol of transition state stabilization relative to the reactant state. Therefore it is essential to take account of substrate polarization for quantitative interpretation of enzymatic function and for calculation of binding free energies of inhibitors to a protein. Atomic polarizations are calculated as the differences in the average atomic charges on the atoms in gas phase and in molecular simulations of the enzyme; this analysis shows that the glutamate tail and the pterin ring are the highly polarized regions of the substrate. Electron density difference plots of the reactant and product complexes at instantaneous configurations in the enzyme active center confirm the inferences made on the basis of partial atomic charges.