Isopentenyl phosphate kinase (IPK) catalyzes the Mg2+-ATP dependent phosphorylation reactions to produce isopentenyl diphosphate, an important precursor in the synthesis of isopentenols. However, the position of the divalent metal ion in the crystal structures of IPK in complex with ATP and its native substrate IP has not been definitively resolved, and as a result ambiguity surrounds the catalytic mechanism of IP, limiting its exploitation as a biofuel and in drug design. Here we report the catalytically competent structure in complex with the metal ion Mg2+ and elucidate the phosphorylation reaction mechanism using molecular dynamic simulations and density functional theory-based quantum mechanics/molecular mechanics calculations (B97d/AMBER99). Comparing the substrate bound and substrate-free IPK complexes, we observed that substrate binding results in significant conformational change of three residues Lys204, G1u207, and Lys211 located on the alpha G helix to form a strong salt bridge network with Asp145, which in turn tethers the invariant Ser142 via H-bond interaction. The conformational change shuts the subtrate entrance channel formed between the alpha G and alpha E helices. Further, we demonstrate the phosphorylation reaction occurs with a reaction barrier of 17.58 kcal/mol, which is in agreement with the previous experimental kinetic data. We found that a highly conserved Gly8 on a glycine-rich loop, together with Lysl4, stabilizes the transition state.