DHFR catalyzes the reduction of dihydrofolate to tetrahydrofolate in a series of coordinated steps. The active site of DHFR binds to both dihydrofolate and NADPH. The hydride ion from NADPH is transferred to dihydrofolate, resulting in the production of tetrahydrofolate and NADP+. This process involves precise positioning of the substrates and stabilization of transition states by specific amino acid residues within the active site.