Dihydropyrimidinase (DHPase) is a key enzyme in the pyrimidine pathway, the catabolic route for synthesis of β-amino acids. It catalyses the reversible conversion of 5,6-dihydrouracil (DHU) or 5,6-dihydrothymine (DHT) to the corresponding N-carbamoyl-β-amino acids. This enzyme has the potential to be used as a tool in the production of β-amino acids. Here, the reaction mechanism and origin of stereospecificity of DHPases from Saccharomyces kluyveri and Sinorhizobium meliloti CECT4114 were investigated and compared using a quantum mechanical cluster approach based on density functional theory. Two models of the enzyme active site were designed from the X-ray crystal structure of the native enzyme: a small cluster to characterize the mechanism and the stationary points and a large model to probe the stereospecificity and the role of stereo-gate-loop (SGL) residues. It is shown that a hydroxide ion first performs a nucleophilic attack on the substrate, followed by the abstraction of a proton by Asp358, which occurs concertedly with protonation of the ring nitrogen by the same residue. For the DHT substrate, the enzyme displays a preference for the L-configuration, in good agreement with experimental observation. Comparison of the reaction energetics of the two models reveals the importance of SGL residues in the stereospecificity of catalysis. The role of the conserved Tyr172 residue in transition-state stabilization is confirmed as the Tyr172Phe mutation increases the activation barrier of the reaction by ∼8 kcal mol-1. A detailed understanding of the catalytic mechanism of the enzyme could offer insight for engineering in order to enhance its activity and substrate scope.