Many polyols and carbohydrates serve in different organisms as protective osmolytes that help to stabilize proteins in their native, functional state, even under a variety of environmental stresses. However, despite their important role, much of the molecular mechanism by which these osmolytes exert their action remains elusive. We have recently shown experimentally that, although polyols and carbohydrates are excluded from protein and peptide interfaces, as also expected for the known entropic "crowding" mechanism, the osmolyte folding action can in fact primarily be enthalpic in nature. To follow this newly resolved enthalpically driven stabilization mechanism, we report here on molecular dynamics simulations of a model peptide that can fold in solution into a β-hairpin. In agreement with experiments, our simulations indicate that sorbitol, a representative polyol, promotes peptide folding by preferential exclusion. At the molecular level, simulations further show that peptide stabilization can be explained by sorbitol's perturbation of the solution hydrogen bonding network in the peptide first hydration shells. Consequently, fewer hydrogen bonds between peptide and solvating water are lost upon folding, and additional internal peptide hydrogen bonds are formed in the presence of sorbitol, while internal peptide and water-associated hydrogen bonds are strengthened, resulting in stabilization of the peptide folded state. We further find that changes in water orientational entropy are reduced upon folding in sorbitol solution, reflecting the struggle of water molecules to maintain optimal hydrogen bonding in the presence of competing polyols. By providing first molecular underpinnings for enthalpically driven osmolyte stabilization of peptides and proteins, this mechanism should allow a better understanding of the variety of physical forces by which protective osmolytes act in biologically realistic solutions.