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The fatty acid amide hydrolase (FAAH) regulates the endocannabinoid system cleaving primarily the lipid messenger anandamide. FAAH has been well characterized over the years and, importantly, it represents a promising drug target to treat several diseases, including inflammatory-related diseases and cancer. But its enzymatic mechanism for lipid selection to specifically hydrolyze anandamide, rather than similar bioactive lipids, remains elusive. Here, we clarify this mechanism in FAAH, examining the role of the dynamic paddle, which is formed by the gating residues Phe432 and Trp531 at the boundary between two cavities that form the FAAH catalytic site (the "membrane-access" and the "acyl chain-binding" pockets). We integrate microsecond-long MD simulations of wild type and double mutant model systems (Phe432Ala and Trp531Ala) of FAAH, embedded in a realistic membrane/water environment, with mutagenesis and kinetic experiments. We comparatively analyze three fatty acid substrates with different hydrolysis rates (anandamide > oleamide > palmitoylethanolamide). Our findings identify FAAH's mechanism to selectively accommodate anandamide into a multi-pocket binding site, and to properly orient the substrate in prereactive conformations for efficient hydrolysis that is interceded by the dynamic paddle. Our findings therefore endorse a structural framework for a lipid selection mechanism mediated by structural flexibility and gating residues between multiple binding cavities, as found in FAAH. Based on the available structural data, this exquisite catalytic strategy for substrate specificity seems to be shared by other lipid-degrading enzymes with similar enzymatic architecture. The mechanistic insights for lipid selection might assist de-novo enzyme design or drug discovery efforts.