Density functional theory has been used to investigate the mechanism and kinetics of the liquid-phase, oxidative carbonylation of toluene to p-toluic acid (C 7 H 8 + CO + 1 / 2 O 2 f p-C 7 H 6 COOH + H 2 O) catalyzed by Rh(III) cations. In toluene solution containing trifluoroacetic acid and dissolved CO, Rh(III) is coordinated to three trifluoroacetate (TFA) anions and two CO molecules as Rh(CO) 2 (TFA) 3 . The oxidative carbonylation of toluene is initiated by the addition of toluene across one of the Rh-O bonds of Rh(CO) 2 (TFA) 3 to form (C 7 H 7 )Rh-(CO) 2 (TFAH)(TFA) 2 . The latter species undergoes isomerization and CO migration to produce (C 7 H 7 CO)-Rh(CO)(TFAH)(TFA) 2 , which then coordinates another molecule of CO. The mixed anhydride of toluic and tirfluoroacetic acid, C 7 H 7 C(O)O(O)CCF 3 and Rh(CO) 3 (TFA), are produced by reductive elimination from (C 7 H 7 CO)Rh(CO) 2 (TFAH)(TFA) 2 . Para-toluic acid is then formed by hydrolysis of C 7 H 7 C(O)O(O)CCF 3 . The proposed reaction mechanism explains many of the observations reported in our previous experimental work (Zakzeski, J. J.; Bell, A. T. J. Mol. Catal. A 2007, 276, 8) and, in particular, the effect of temperature on the ratio of p-to m-toluic acid, the effects of H 2 O and the partial pressure of CO on the loss of catalyst activity, and the effect of Rh concentration on the formation of a catalytically inactive Rh dimer species.