A new practical approach to studying enzyme reactions by combining ab initio QM/MM calculations with free energy perturbation is presented. An efficient iterative optimization procedure has been developed to determine optimized structures and minimum energy paths for a system with thousands of atoms on the ab initio QM/MM potential: the small QM sub-system is optimized using a quasi-Newton minimizer in redundant internal coordinates with ab initio QM/MM calculations, while the large MM sub-system is minimized by the truncated Newton method in Cartesian coordinates with only molecular mechanical calculations. The above two optimization procedures are performed iteratively until they converge. With the determined minimum energy paths, free energy perturbation calculations are carried out to determine the change in free energy along the reaction coordinate. Critical to the success of the iterative optimization procedure and the free energy calculations is the smooth connection between the QM and MM regions provided by a recently proposed pseudobond QM/MM approach [J. Chem. Phys. 110, 46 (1999)]. The methods have been demonstrated by studying the initial proton transfer step in the reaction catalyzed by the enzyme triosephosphate isomerase (TIM). (C) 2000 American Institute of Physics. [S0021-9606(00)30708-5].