To investigate fundamental features of enzyme catalysis, there is a need for high-level calculations capable of modelling crucial, unstable species such as transition states as they are formed within enzymes. We have modelled an important model enzyme reaction, the Claisen rearrangement of chorismate to prephenate in chorismate mutase, by combined ab initio quantum mechanics/molecular mechanics (QM/MM) methods. The best estimates of the potential energy barrier in the enzyme are 7.4-11.0 kcal mol(-1)(MP2/6-31+G(d)//6-31G(d)/CHARMM22) and 12.7-16.1 kcal mol(-1)(B3LYP/6-311+G(2d,p)//6-31G(d)/CHARMM22), comparable to the experimental estimate of Delta H(++)= 12.7 +/- 0.4 kcal mol(-1). The results provide unequivocal evidence of transition state (TS) stabilization by the enzyme, with contributions from residues Arg90, Arg7, and Arg63. Glu78 stabilizes the prephenate product (relative to substrate), and can also stabilize the TS. Examination of the same pathway in solution (with a variety of continuum models), at the same ab initio levels, allows comparison of the catalyzed and uncatalyzed reactions. Calculated barriers in solution are 28.0 kcal mol(-1)(MP2/6-31+G(d)/PCM) and 24.6 kcal mol(-1)(B3LYP/6-311+G(2d,p)/PCM), comparable to the experimental finding of Delta G(++)= 25.4 kcal mol(-1) and consistent with the experimentally-deduced 10(6)-fold rate acceleration by the enzyme. The substrate is found to be significantly distorted in the enzyme, adopting a structure closer to the transition state, although the degree of compression is less than predicted by lower-level calculations. This apparent substrate strain, or compression, is potentially also catalytically relevant. Solution calculations, however, suggest that the catalytic contribution of this compression may be relatively small. Consideration of the same reaction pathway in solution and in the enzyme, involving reaction from a 'near-attack conformer' of the substrate, indicates that adoption of this conformation is not in itself a major contribution to catalysis. Transition state stabilization (by electrostatic interactions, including hydrogen bonds) is found to be central to catalysis by the enzyme. Several hydrogen bonds are observed to shorten at the TS. The active site is clearly complementary to the transition state for the reaction, stabilizing it more than the substrate, so reducing the barrier to reaction.