This thesis studies the ability of computer simulation to determine the location and free energy of binding of active site water molecules, and the energetic effect water molecules can have on ligand binding. The primary method used involves sampling within the grand canonical ensemble, using grand canonical Monte Carlo (GCMC). The first results chapter looks at the introduction of replica exchange (RE) to GCMC simulations, and the improvements this yields in the reliability of calculated water binding free energies. The results show that GCMC can determine water binding free energies that are consistent with double-decoupling methods, while being able to calculate multiple water free energies simultaneously, without a priori knowledge of water locations. The second chapter explores the accuracy of GCMC at determining the locations of active site water molecules, using a large dataset of molecules and targets of pharmaceutical interest. Understanding the accuracy of GCMC to reproduce crystallographic water locations allows for reliable calculation of protein-ligand complexes without experimentally known water locations being known. Focus will be placed on the variation of quoted water placement success rates with different published protocols. The final chapter of this thesis involves the integration of two techniques; GCMC and ligand alchemical perturbation simulations. Grand canonical Alchemical Perturbations (GCAP) will be presented, whereby relative binding free energies of pairs of ligands are calculated, while active site water molecules are sampled using the grand canonical ensemble. This GC sampling of water allows the ligands water network to dynamically adapt. GCAP will be demonstrated for two example systems, where active site water molecules are a key factor in the ligand binding affinities.