Peptide bond hydrolysis of several peptides with a Gly-X sequence (X = Gly, Ala, Val, Leu, Ile, Phe) catalyzed by a dimeric Zr(IV)-substituted Keggin type polyoxometalate (POM), (Et2NH2)8[{α-PW11O39Zr(μ–OH)(H2O)}2]·7H2O (1), was studied by means of kinetic experiments and 1H NMR spectroscopy. The observed rate of peptide bond hydrolysis was found to decrease with increase of the side chain bulkiness, from 4.44 × 10–7 s–1 for Gly-Gly to 0.81 × 10–7 s–1 for Gly-Ile. A thorough DFT investigation was performed to elucidate (a) the nature of the hydrolytically active species in solution, (b) the mechanism of peptide bond hydrolysis, and (c) the influence of the aliphatic residues on the rate of hydrolysis. Formation of substrate–catalyst complexes of the dimeric POM 1 was predicted as thermodynamically unlikely. Instead, the substrates prefer to bind to the monomerization product of 1, [α-PW11O39Zr(OH)(H2O)]4– (2), which is also present in solution. In the hydrolytically active complex two dipeptide ligands are coordinated to the Zr(IV) center of 2. The first ligand is bidentate-bound through its amino nitrogen and amide oxygen atoms, while the second ligand is monodentate-bound through a carboxylic oxygen atom. The mechanism of hydrolysis involves nucleophilic attack by a solvent water molecule on the amide carbon atom of the bidentate-bound ligand. In this process the uncoordinated carboxylic group of the same ligand acts as a general base to abstract a proton from the attacking water molecule. The decrease of the hydrolysis rate with an increase in the side chain bulkiness is mostly due to the increased ligand conformational strain in the rate-limiting transition state, which elevates the reaction activation energy. The conformational strain increases first upon substitution of Hα in Gly-Gly with the aliphatic α substituent and second with the β branching of the α substituent.