The significance of the molecular chirality of drugs has been widely recognized due to the thalidomide tragedy. Most of the new drugs reaching the market today are single enantiomers, rather than racemic mixtures. However, many optically pure drugs, including thalidomide, undergo enantiomerization in vivo, thus negating the single enantiomers’ benefits or inducing unexpected effects. A detailed atomic level understanding of chiral conversion, which is still largely lacking, is thus critical for drug development. Herein, we use first-principle density function theory (DFT) to explore the mechanism of enantiomerization of thalidomide. We have identified the two most plausible interconversion pathways for isolated thalidomide: 1) proton transfer from the chiral carbon center to an adjacent carbonyl oxygen atom, followed by isomerization and rotation of the glutarimide ring (before the proton hops back to the chiral carbon atom); and 2) a pathway that is the same as “1”, but with the isomerization of the glutarimide ring occurring ahead of the initial proton transfer reaction. There are two remarkable energy barriers, 73.29 and 23.59 kcal mol−1, corresponding to the proton transfer and the rotation of the glutarimide ring, respectively. Furthermore, we found that water effectively catalyzes the interconversion by facilitating the proton transfer with the highest energy barrier falling to approximately 30 kcal mol−1, which, to our knowledge, is the first time that this important role of water in chiral conversion has been demonstrated. Finally, we show that the hydroxide ion can further lower the enantiomerization energy barrier to approximately 24 kcal mol−1 by facilitating proton abstraction, which agrees well with recent experimental data under basic conditions. Our current findings highlight the importance of water and hydroxide ions in the enantiomerization of thalidomide and also provide new insights into the mechanism of enantiomerization at an atomic level.