A molecular modeling study has been used to investigate the structural and energetic aspects of substrate and inhibitor binding and the mechanism of catalysis of influenza virus sialidase. A detailed analysis of the interactions of both N-acetylneuraminic acid (Neu5Ac,1) and a number of transition-state analogues with the active site of influenza A sialidase at an atomic level is reported. In each case the calculated structures favorably agreed with the results from X-ray studies. A qualitative agreement between the calculated binding energies for inhibitors with positive substituents at the C4 position on the sugar ring and experimental Ki values was observed. We propose that the hydrolysis of sialosides occurs via an SN1 type mechanism that is facilitated through an activated solvent water molecule which can be expelled upon inhibitor binding. A reaction scheme is presented that is consistent with previously observed crystallographic structures, anomeric products, and isotope effects.