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We implemented a novel approach to score water mediation and displacement in the protein−ligand docking program GOLD. The method allows water molecules to switch on and off and to rotate around their three principal axes. A constant penalty, σ_p, representing the loss of rigid-body entropy, is added for water molecules that are switched on, hence rewarding water displacement. We tested the methodology in an extensive validation study. First, σ_p is optimized against a training set of 58 protein−ligand complexes. For this training set, our algorithm correctly predicts water mediation/displacement in ∼92% of the cases. We observed small improvements in the quality of the predicted binding modes for water-mediated complexes. In the second part of this work, an entirely independent set of 225 complexes is used. For this test set, our algorithm correctly predicts water mediation/displacement in ∼93% of the cases …