The mechanism of hydroarylation of olefins by a homogeneous Ph-Ir(acac)(2)(L) catalyst is elucidated by first principles quantum mechanical methods (DFT), with particular emphasis on activation of the catalyst, catalytic cycle, and interpretation of experimental observations. On the basis of this mechanism, we suggest new catalysts expected to have improved activity. Initiation of the catalyst from the inert trans-form into the active cis-form occurs through a dissociative pathway with a calculated DeltaH(0 K)() = 35.1 kcal/mol and DeltaG(298 K)() = 26.1 kcal/mol. The catalytic cycle features two key steps, 1,2-olefin insertion and C-H activation via a novel mechanism, oxidative hydrogen migration. The olefin insertion is found to be rate determining, with a calculated DeltaH(0 K)() = 27.0 kcal/mol and DeltaG(298 K)() = 29.3 kcal/mol. The activation energy increases with increased electron density on the coordinating olefin, as well as increased electron-donating character in the ligand system. The regioselectivity is shown to depend on the electronic and steric characteristics of the olefin, with steric bulk and electron withdrawing character favoring linear product formation. Activation of the C-H bond occurs in a concerted fashion through a novel transition structure best described as an oxidative hydrogen migration. The character of the transition structure is seven coordinate Ir(V), with a full bond formed between the migrating hydrogen and iridium. Several experimental observations are investigated and explained: (a) The nature of L influences the rate of the reaction through a ground-state effect. (b) The lack of beta-hydride products is due to kinetic factors, although beta-hydride elimination is calculated to be facile, all further reactions are kinetically inaccessible. (c) Inhibition by excess olefin is caused by competitive binding of olefin and aryl starting materials during the catalytic cycle in a statistical fashion. On the basis of this insertion-oxidative hydrogen transfer mechanism we suggest that electron-withdrawing substituents on the acac ligands, such as trifluoromethyl groups, are good modifications for catalysts with higher activity.