Influences of solvent molecules on SN2 reaction dynamics of microsolvated F-(H2O)n with CH3I, for n = 0-3, are uncovered by direct chemical dynamics simulations. The direct substitution mechanism, which is important without microsolvation, is quenched dramatically upon increasing hydration. The water molecules tend to force reactive encounters to proceed through the prereaction collision complex leading to indirect reaction. In contrast to F-(H2O), reaction with higher hydrated ions shows a strong propensity for ion desolvation in the entrance channel, diminishing steric hindrance for nucleophilic attack. Thus, nucleophilic substitution avoids the potential energy barrier with all of the solvent molecules intact and instead occurs through the less solvated barrier, which is energetically unexpected because the former barrier has a lower energy. The work presented here reveals a trade-off between reaction energetics and steric effects, with the latter found to be crucial in understanding how hydration influences microsolvated SN2 dynamics.