Most phosphate-processing enzymes require Mg(2+) as a cofactor to catalyze nucleotide cleavage and transfer reactions. Ca(2+) ions inhibit many of these enzymatic activities, despite Ca(2+) and Mg(2+) having comparable binding affinities and overall biological abundances. Here we study the molecular details of the calcium inhibition mechanism for phosphodiester cleavage, an essential reaction in the metabolism of nucleic acids and nucleotides, by comparing Ca(2+)- and Mg(2+) catalyzed reactions. We study the functional roles of the specific metal ion sites A and B in enabling the catalytic cleavage of an RNA/DNA hybrid substrate by B. halodurans ribonuclease (RNase) H1 using hybrid quantum-mechanics/molecular mechanics (QM/MM) free energy calculations. We find that Ca(2+) substitution of either of the two active-site Mg(2+) ions substantially increases the height of the reaction barrier and thereby abolishes the catalytic activity. Remarkably, Ca(2+) at the A site is inactive also in Mg(2+)-optimized active-site structures along the reaction path, whereas Mg(2+) substitution recovers activity in Ca(2+)-optimized structures. Geometric changes resulting from Ca(2+) substitution at metal ion site A may thus be a secondary factor in the loss of catalytic activity. By contrast, at metal ion site B geometry plays a more important role, with only a partial recovery of activity after Mg(2+) substitution in Ca(2+)-optimized structures. Ca(2+)-substitution also leads to a change in mechanism, with deprotonation of the water nucleophile requiring a closer approach to the scissile phosphate, which in turn increases the barrier. As a result, Ca(2+) is less efficient in activating the water. As a likely cause for the different reactivities of Mg(2+) and Ca(2+) ions in site A, we identify differences in charge transfer to the ions and the associated decrease in the pKa of the oxygen nucleophile attacking the phosphate group.