Hydrolysis of nucleoside triphosphate (NTP) plays a key role for the function of many biomolecular systems. However, the chemistry of the catalytic reaction in terms of an atomic-level understanding of the structural, dynamic, and free energy changes associated with it often remains unknown. Here, we report the molecular mechanism of adenosine triphosphate (ATP) hydrolysis in the ATP-binding cassette (ABC) transporter BtuCD-F. Free energy profiles obtained from hybrid quantum mechanical/molecular mechanical (QM/MM) molecular dynamics (MD) simulations show that the hydrolysis reaction proceeds in a stepwise manner. First, nucleophilic attack of an activated lytic water molecule at the ATP γ-phosphate yields ADP + HPO4 2- as intermediate product. A conserved glutamate that is located very close to the γ-phosphate transiently accepts a proton and thus acts as catalytic base. In the second step, the proton is transferred back from the catalytic base to the γ-phosphate, yielding ADP + H2PO4 -. These two chemical reaction steps are followed by rearrangements of the hydrogen bond network and the coordination of the Mg2+ ion. The rate constant estimated from the computed free energy barriers is in very good agreement with experiments. The overall free energy change of the reaction is close to zero, suggesting that phosphate bond cleavage itself does not provide a power stroke for conformational changes. Instead, ATP binding is essential for tight dimerization of the nucleotide-binding domains and the transition of the transmembrane domains from inward- to outward-facing, whereas ATP hydrolysis resets the conformational cycle. The mechanism is likely relevant for all ABC transporters and might have implications also for other NTPases, as many residues involved in nucleotide binding and hydrolysis are strictly conserved.