The combination of Al nanoparticles (ANPs) as fuel and Hsub.2Osub.2 as oxidizer is a potential green space propellant. In this research, reactive force field molecular dynamics (ReaxFF-MD) simulations were used to study the influence of water addition on the combustion of Al/Hsub.2Osub.2. The MD results showed that as the percentage of Hsub.2O increased from 0 to 30%, the number of Al-O bonds on the ANPs decreased, the number of Al-H bonds increased, and the adiabatic flame temperature of the system decreased from 4612 K to 4380 K. Since the Al-O bond is more stable, as the simulation proceeds, the number of Al-O bonds will be significantly higher than that of Al-H and Al-OH bonds, and the Al oxides (AlOsub.x) will be transformed from low to high coordination. Subsequently, the combustion mechanism of the Al/Hsub.2Osub.2/Hsub.2O system was elaborated from an atomic perspective. Both Hsub.2Osub.2 and Hsub.2O were adsorbed and chemically activated on the surface of ANPs, resulting in molecular decomposition into free radicals, which were then captured by ANPs. Hsub.2 molecules could be released from the ANPs, while Osub.2 could not be released through this pathway. Finally, it was found that the coverage of the oxide layer reduced the rate of Hsub.2Osub.2 consumption and Hsub.2 production significantly, simultaneously preventing the deformation of the Al clusters’ morphology.