Enzymes are important biocatalysts that mediate most chemical transformations in organisms. Quantum chemical methods have successfully been adopted to analyse reaction pathways of enzymes at atomic levels in resent years. β-galactosidase is an enzyme which, hydrolyzes milk sugar (lactose), and produces one galactose and one glucose molecules. In this work, the reaction mechanism of β-galactosidase has been investigated and the energy profile of the reaction is derived. The quantum chemical cluster approach is employed, and a model of the active site is designed on the basis of the high resolution X-ray crystal structure of the native enzyme (Protein Data Bank entry 3tty). Our study shows that in the first step of the proposedmechanism, Glu307 attacks as a nucleophile to Cα by an SN2 mechanism, and then the glycosidic oxygen is protonated by Glu150 as an acid/base catalyst. This, in turn, results in a glucose molecule, and a covalent galactosyl-enzyme intermediate is formed. This intermediate is hydrolysed by a water molecule and galactose is released.