The role of aqueous solvation on the potential surface of the SN2 Menshutkin reaction between ammonia and methyl chloride has been examined by using a combined quantum mechanical and statistical mechanical method. In the present simulation approach, the reactant molecules are treated by the semiempirical AM1 theory, while the solvent is represented by the empirical TIP3P model. Solute-solvent interactions are evaluated through Hartree-Fock molecular orbital calculations throughout the fluid simulation. In this paper, it is first demonstrated, by comparison with high-level ab initio results, that this hybrid quantum mechanical and molecular mechanical (QM/MM-AM1/TIP3P) model can provide an adequate description of intermolecular interactions between the solute and solvent for the Menshutkin reaction. The free energy surface in aqueous solution is then determined via statistical perturbation theory with a grid search algorithm. The results suggest that the solvent effects strongly stabilize the transition state and products. The computed free energy of activation (26 kcal/mol) is in good agreement with previous theoretical and experimental estimates. The most striking finding is that the transition state is shifted significantly toward the reactants, with a lengthening of the C-N bond by 0.30 Å and a shortening of the C-Cl bond by 0.15 Å. This is in accord with the Hammond postulate and consistent with previous theoretical studies. Analyses of the simulation results indicate that the charge separation during the present Type II SN2 reaction is promoted by the solvent effect, with a charge transfer of about 65% complete at the transition state. Detailed insights into the structural and energetic nature of the differential solvation of the reactants and transition state are provided.