Enzyme‐mediated catalysis is attributed to enzyme–substrate interactions, with models such as “induced fit” and “conformational selection” emphasizing the role of protein conformational transitions. The dynamic nature of the protein structure, thus, plays a crucial role in molecular recognition and substrate binding. As large‐scale protein motions are coupled to water motions, hydration dynamics play a key role in protein dynamics, and hence, in enzyme catalysis. Here, microfluidic techniques and time‐dependent fluorescence Stokes shift (TDFSS) measurements are employed to elucidate the role of nanoscopic water dynamics in the interaction of an enzyme, α‐Chymotrypsin (CHT), with a substrate, Ala‐Ala‐Phe‐7‐amido‐4‐methylcoumarin (AMC) in the cationic reverse micelles of benzylhexadecyldimethylammonium chloride (BHDC/benzene) and anionic reverse micelles of sodium bis(2‐ethylhexyl)sulfosuccinate (AOT/benzene). The kinetic pathways unraveled from the microfluidic setup are consistent with the “conformational selection” fit for the interaction of CHT with AMC in the cationic reverse micelles, whereas an “induced fit” mechanism is indicated for the anionic reverse micelles. In the cationic reverse micelles of BHDC, faster hydration dynamics (≈550 ps) aid the pathway of “conformational selection”, whereas in the anionic reverse micelles of AOT, the significantly slower dynamics of hydration (≈1600 ps) facilitate an “induced fit” mechanism for the formation of the final enzyme–substrate complex. The role of water dynamics in dictating the mechanism of enzyme–substrate interaction becomes further manifest in the neutral reverse micelles of Brij‐30 and Triton X‐100. In the former, the faster water dynamics aid the “conformational selection” pathway, whereas the significantly slower dynamics of water molecules in the latter are conducive to the “induced fit” mechanism in the enzyme–substrate interaction. Thus, nanoscopic water dynamics act as a switch in modulating the pathway of recognition of an enzyme (CHT) by the substrate (AMC) in reverse micelles.