Hydrocarbon generation from shale usually occurs in a reducing aqueous environment. Understanding the pyrolysis characteristics of shale kerogen under hydrous conditions is crucial for elucidating the hydrocarbon generation mechanism, yet few microscale studies have examined how varying moisture content affects shale pyrolysis. This study characterizes the microstructure of shale kerogen samples and performs hydrous pyrolysis simulations using ReaxFF MD technology. The results indicate that hydrous pyrolysis promotes the cracking of kerogen and increases the yield of gaseous hydrocarbons. Water significantly increases the types and numbers of free radicals during the pyrolysis process, enhances reaction activity, facilitates dehydrogenation reactions, and improves the saturation of kerogen molecules. The degree of aromatic condensation in kerogen determines the optimal moisture content threshold for promoting pyrolysis, while the presence of polar functional groups shifts this threshold. As the degree of aromatic ring condensation increases, the hydrophobicity of kerogen increases, thereby raising the optimal moisture content threshold for promoting pyrolysis. At low moisture content, water has minimal effect on pyrolysis and may even inhibit the reaction. Moreover, the yields of gaseous hydrocarbons and char from kerogen are positively correlated with the concentration of hydrogen free radicals (·H). These findings provide a theoretical foundation for shale gas exploration and development.