The conformational substates B(I) and B(II) of the phosphodiester backbone in B-DNA are thought to contribute to DNA flexibility and protein recognition. We have studied by rapid scan FTIR spectroscopy the isothermal B(I)-B(II) transition on its intrinsic time scale. Correlation analysis of IR absorption changes occurring within seconds after a reversible incremental growth of the DNA hydration shell identifies water populations w(1) (PO(2)(-)-bound) and w(2) (non-PO(2)(-)-bound) exhibiting weaker and stronger H-bonds, respectively, than those dominating in bulk water. The B(II) substate is stabilized by w(2). The water H-bond imbalance of 3-4 kJ mol(-1) is equalized at little enthalpic cost upon formation of a contiguous water network (at 12-14 H(2)O molecules per DNA phosphate) of reduced v(OH) bandwidth. In this state, hydration water cooperatively stabilizes the B(I) conformer via the entropically favored replacement of w(2)-DNA interactions by additional w(2)-water contacts, rather than binding to B(I)-specific hydration sites. Such water rearrangements contribute to the recognition of DNA by indolicidin, an antimicrobial 13-mer peptide from bovine neutrophils which, despite little intrinsic structure, preferentially binds to the B(I) conformer in a water-mediated induced fit. The FTIR spectra resolve sequential steps leading from PO(2)(-)-solvation to substate transition and eventually to base stacking changes in the complex. In combination with CD-spectral titrations, the data indicate that, in the absence of a bulk aqueous phase, as in molecular crowded environments, water relocation within the DNA hydration shell allows for entropic contributions similar to those assigned to water upon DNA ligand recognition in solution.