Water plays a critical role in chemical degradations, such as deamidation, in freeze-dried proteins. Two distinct patterns for deamidation in relation to water have been reported, that is a "hockey stick"-type behavior with a water-independent deamidation rate, followed by a sharp increase above a water content threshold, and an inverted bell-shaped profile. To understand the underlying mechanism, molecular dynamics simulations are employed to study the explicit water distributions around reactive sites for amorphous and crystalline insulin as well as amorphous IgG1. The simulated water distribution on the protein surface is first validated by successfully predicting water vapor sorption isotherms for both amorphous and crystalline insulin. The "hockey stick"-type behavior is explained by a water threshold level beyond which there are two (Asn-Gly sequence in IgG1) or three (Asn at the C-terminus in insulin) water molecules assisting the cyclization reactions. Regarding the inverted bell-shaped profile for amorphous IgG1, the initial decreases in deamidation rate with increasing water content at low water levels can be rationalized by a lower density and higher free volume of IgG1 at a lower water content. When the free volume exceeds a percolation threshold, the produced ammonia gas can easily diffuse away, lowering the back reaction rate and thus raising the overall reaction rate. The "free volume" mechanism can also be applied to the abnormal stability ranking orders of crystalline and amorphous insulin. The faster deamidation and dimerization rates in insulin crystals compared to amorphous insulin as reported by Pikal and Rigsbee are due to the lower density and higher free volume (above the percolation threshold) in crystalline insulin, assuming that dehydration of insulin crystals does not result in a major collapse of the crystal structure.