The Bacillus fragment, belonging to a class of high-fidelity polymerases, demonstrates high processivity (adding approximately 115 bases per DNA binding event) and exceptional accuracy (1 error in 10(6) nucleotide incorporations) during DNA replication. We present analysis of structural rearrangements and energetics just before and during the chemical step (phosphodiester bond formation) using a combination of classical molecular dynamics, mixed quantum mechanics molecular mechanics simulations, and free energy computations. We find that the reaction is associative, proceeding via the two-metal-ion mechanism, and requiring the proton on the terminal primer O3' to transfer to the pyrophosphate tail of the incoming nucleotide before the formation of the pentacovalent transition state. Different protonation states for key active site residues direct the system to alternative pathways of catalysis and we estimate a free energy barrier of approximately 12 kcal/mol for the chemical step. We propose that the protonation of a highly conserved catalytic aspartic acid residue is essential for the high processivity demonstrated by the enzyme and suggest that global motions could be part of the reaction free energy landscape.