The free energy change associated with the coil-to-native structural transition of protein G in aqueous solution is calculated by using the molecular theory of solvation, also known as the three-dimensional reference interaction site model theory, to uncover the molecular mechanism of protein folding. The free energy is decomposed into the protein intramolecular energy, the hydration energy, and the hydration entropy. The folding is accompanied with a large gain in the protein intramolecular energy. However, it is almost canceled by the correspondingly large loss in the hydration energy due to the dehydration, resulting in the total energy gain about an order of magnitude smaller than might occur in vacuum. The hydration entropy gain is found to be a substantial driving force in protein folding. It is comparable with or even larger than the total energy gain. The total energy gain coupled with the hydration entropy gain is capable of suppressing the conformational entropy loss in the folding. Based on careful analysis of the theoretical results, the authors present a challenging physical picture of protein folding where the overall folding process is driven by the water entropy effect.