A reference system for DNA replication fidelity was studied by free energy perturbation (FEP) and linear interaction energy ( LIE) methods. The studied system included a hydrated duplex DNA with the 5'-CG dangling end of the templating strand, and dCTP(4-)center dot Mg2+ or dTTP(4-)center dot Mg2+ inserted opposite the dangling G to form a correct (i.e., Watson-Crick) or incorrect ( i.e., wobble) base pair, respectively. The average distance between the 3'-terminal oxygen of the primer strand and the R-phosphorus of dNTP was found to be 0.2 angstrom shorter for the correct base pair than for the incorrect base pair. Binding of the incorrect dNTP was found to be disfavored by 0.4 kcal/mol relative to the correct dNTP. We estimated that improved binding and more near-attack configurations sampled by the correct base pair should translate in aqueous solution and in the absence of DNA polymerase into a six times faster rate for the incorporation of the correct dNTP into DNA. The accuracy of the calculated binding free energy difference was verified by examining the relative free energy for melting duplex DNA containing GC and GT terminal base pairs flanked by a 5' dangling C. The calculated LIE and FEP free energies of 1.7 and 1.1 kcal/mol, respectively, compared favorably with the experimental estimate of 1.4 kcal/mol obtained using the nearest neighbor parameters. To decompose the calculated free energies into additive electrostatic and van der Waals contributions and to provide a set of rigorous theoretical data for the parametrization of the LIE method, we suggested a variant of the FEP approach, for which we coined a binding-relevant free energy (BRFE) acronym. BRFE approach is characterized by its unique perturbation pathway and by its exclusion of the intramolecular energy of a rigid part of the ligand from the total potential energy.