A joint QM/MM and ab initio study on the decomposition of urea in the gas phase and in aqueous solution is reported. Numerous possible mechanisms of intramolecular decomposition and hydrolysis have been explored; intramolecular NH3 elimination assisted by a water molecule is found to have the lowest activation energy. The solvent effects were elucidated using the TIP4P explicit water model with free energy perturbation calculations in conjunction with QM/MM Monte Carlo simulations. The explicit representation of the solvent was found to be essential for detailed resolution of the mechanism, identification of the rate-determining step, and evaluation of the barrier. The assisting water molecule acts as a hydrogen shuttle for the first step of the elimination reaction. The forming zwitterionic intermediate, H3NCONH, participates in 8-9 hydrogen bonds with water molecules. Its decomposition is found to be the rate-limiting step, and the overall free energy of activation for the decomposition of urea in water is computed to be approximately 37 kcal/mol; the barrier for hydrolysis by an addition/elimination mechanism is found to be approximately 40 kcal/mol. The differences in the electronic structure of the transition states of the NH3 elimination and hydrolysis were examined via natural bond order analysis. Destruction of urea's resonance stabilization during hydrolysis via an addition/elimination mechanism and its preservation in the rearrangement to the H3NCONH intermediate were identified as important factors in determining the preferred reaction route.