The nucleotidyl transfer reaction catalyzed by DNA polymerases is the critical step governing the accurate transfer of genetic information during DNA replication, and its malfunctioning can cause mutations leading to human diseases, including cancer. Here, utilizing ab initio quantum mechanical/molecular mechanical calculations with free-energy perturbation, we carried out an extensive investigation of the nucleotidyl transfer reaction mechanism in the well-characterized high-fidelity replicative DNA polymerase from phage T7. Our defined mechanism entails an initial concerted deprotonation of a conserved crystal water molecule with protonation of the gamma-phosphate of the deoxynucleotide triphosphate(dNTP) via a solvent water molecule, and then the proton on the primer 3'-terminus is transferred to the resulting hydroxide ion. Subsequently, the nucleophilic attack takes place, with the formation of a metastable pentacovalent phosphorane intermediate. Finally, the pyrophosphate leaves, facilitated by the relay of the proton on the gamma-phosphate to the alpha-beta bridging oxygen via solvent water. The computed activation free-energy barrier is consistent with kinetic data for the chemistry step with correct nucleotide incorporation in T7 DNA polymerase. This variant of the water-mediated and substrate-assisted mechanism has features tailored to the structure of the T7 DNA polymerase. However, a unifying theme in the water-mediated and substrate-assisted mechanism is the cycling through crystal and solvent water molecules of the proton originating from the primer 3'-terminus to the alpha-beta bridging oxygen of the deoxynucleotide triphosphate; this neutralizes the evolving negative charge as pyrophosphate leaves and restores the polymerase to its pre-chemistry state. These unifying features are likely requisite elements for nucleotidyl transfer reactions.