The microtubule (MT)-associated motor protein kinesin utilizes its conserved ATPase head to achieve diverse motility characteristics. Despite considerable knowledge about how its ATPase activity and MT binding are coupled to the motility cycle, the atomic mechanism of the core events remain to be found. To obtain insights into the mechanism, we performed 38.5 microseconds of all-atom molecular dynamics simulations of kinesin-MT complexes in different nucleotide states. Local subdomain dynamics were found to be essential for nucleotide processing. Catalytic water molecules are dynamically organized by the switch domains of the nucleotide binding pocket while ATP is torsionally strained. Hydrolysis products are 'pulled' by switch-I, and a new ATP is 'captured' by a concerted motion of the α0/L5/switch-I trio. The dynamic and wet kinesin-MT interface is tuned for rapid interactions while maintaining specificity. The proposed mechanism provides the flexibility necessary for walking in the crowded cellular environment.