Background: This work represents an extensive MD simulation / water-dynamics studies on a series of complexes of inhibitors (leupeptin, E-64, E-64-C, ZPACK) and plant cysteine proteases (actinidin, caricain, chymopapain, calotropin DI) of papain family to understand the various interactions, water binding mode, factors influencing it and the structural basis of differential inhibition. Results: The tertiary structure of the enzyme-inhibitor complexes were built by visual interactive modeling and energy minimization followed by dynamic simulation of 120 ps in water environment. DASA study with and without the inhibitor revealed the potential subsite residues involved in inhibition. Though the interaction involving main chain atoms are similar, critical inspection of the complexes reveal significant differences in the side chain interactions in S2-P2 and S3-P3 pairs due to sequence differences in the equivalent positions of respective subsites leading to differential inhibition. Conclusion: The key finding of the study is a conserved site of a water molecule near oxyanion hole of the enzyme active site, which is found in all the modeled complexes and in most crystal structures of papain family either native or complexed. Conserved water molecules at the ligand binding sites of these homologous proteins suggest the structural importance of the water, which changes the conventional definition of chemical geometry of inhibitor binding domain, its shape and complimentarity. The water mediated recognition of inhibitor to enzyme subsites (P n...H2O....Sn) of leupeptin acetyl oxygen to caricain, chymopapain and calotropinDI is an additional information and offer valuable insight to potent inhibitor design.