In this study, β-galactosidase was utilized as a model enzyme to investigate the mechanism of enzyme inactivation during bread baking. Thermal inactivation of β-galactosidase was investigated in a wheat flour/water system at varying temperature-moisture content combinations, and in bread during baking at 175 or 205 °C. In the wheat flour/water system, the thermostability of β-galactosidase increased with decreased moisture content, and a kinetic model was accurately fitted to the corresponding inactivation data (R2 = 0.99). Interestingly, the residual enzyme activity in the bread crust (about 30%) was hundredfold higher than that in the crumb (about 0.3%) after baking, despite the higher temperature in the crust throughout baking. This result suggested that the reduced moisture content in the crust increased the thermostability of the enzyme. Subsequently, the kinetic model reasonably predicted the enzyme inactivation in the crumb using the same parameters derived from the wheat flour/water system. However, the model predicted a lower residual enzyme activity in the crust compared with the experimental result, which indicated that the structure of the crust may influence the enzyme inactivation mechanism during baking. The results reported can provide a quantitative understanding of the thermal inactivation kinetics of enzyme during baking, which is essential to better retain enzymatic activity in bakery products supplemented with heat-sensitive enzymes.