Cyclodipeptide synthases (CDPSs) form various cyclodipeptides from two aminoacyl tRNAs via a stepwise mechanism with the formation of a dipeptidyl enzyme intermediate. As a final step of the catalytic reaction, the dipeptidyl group undergoes intramolecular cyclization to generate the target cyclodipeptide product. In this work, we investigated the cyclization reaction in the cyclodipeptide synthase AlbC using QM/MM methods and free energy simulations. The results indicate that the catalytic Y202 residue is in its neutral protonated form, and thus, is not likely to serve as a general base during the reaction. We further demonstrate that the reaction relies on the conserved residue Y202 serving as a proton relay, and the direct proton transfer from the amino group to S37 of AlbC is unlikely. Calculations reveal that the hydroxyl group of tyrosine is more suitable for the proton transfer than hydroxyl groups of other amino acids, such as serine and threonine. Results also show that the residues E182, N40, Y178 and H203 maintain the correct conformation of the dipeptide needed for the cyclization reaction. The mechanism discovered in this work relies on the amino groups conserved among the entire CDPS family and, thus is expected to be universal among CDPSs.