The hydrolysis of cellulose is the bottleneck in cellulosic ethanol production. The cellobiohydrolase CelS from Clostridium thermocellum catalyzes the hydrolysis of cello-oligosaccharides via inversion of the anomeric carbon. Here, to examine key features of the CelS-catalyzed reaction, QM/MM (SCCDFTB/MM) simulations are performed. The calculated free energy profile for the reaction possesses a 19 kcal/mol barrier. The results confirm the role of active site residue Glu87 as the general acid catalyst in the cleavage reaction and show that Asp255 may act as the general base. A feasible position in the reactant state of the water molecule responsible for nucleophilic attack is identified. Sugar ring distortion as the reaction progresses is quantified. The results provide a computational approach that may complement the experimental design of more efficient enzymes for biofuel production.