A 3,5-dihydro-5-methylidene-4H-imidazol-4-one (MIO) electrophilic moiety is post-translationally and autocatalytically generated in homotetrameric histidine ammonia-lyase (HAL) and other enzymes containing the tripeptide Ala-Ser-Gly in a suitably positioned loop. The backbone cyclization step is identical to that taking place during fluorophore formation in green fluorescent protein from the tripeptide Ser-Tyr-Gly, but dehydration, rather than dehydrogenation by molecular oxygen, is the reaction that gives rise to the mature MIO ring system. To gain additional insight into this unique process and shed light on some still unresolved issues, we have made use of extensive molecular dynamics simulations and hybrid quantum mechanics/molecular mechanics calculations implementing the self-consistent charge density functional tight-binding method on a fully solvated tetramer of Pseudomonas putida HAL. Our results strongly support the idea that mechanical compression of the reacting loop by neighboring protein residues in the precursor state is absolutely required to prevent formation of inhibitory main-chain hydrogen bonds and to enforce proper alignment of donor and acceptor orbitals for bond creation. The consideration of the protein environment in our computations shows that water molecules, which have been mostly neglected in previous theoretical work, play a highly relevant role in the reaction mechanism and, more importantly, that backbone cyclization resulting from the nucleophilic attack of the Gly amide lone pair on the π* orbital of the Ala carbonyl precedes side-chain dehydration of the central serine.