The mechanism, reactivity, regio- and enantioselectivity of the Rh-catalyzed carboacylation of benzocyclobutenones are investigated using density functional theory (DFT) calculations. The calculations indicate that the selective activation of the relatively unreactive C1-C2 bond in benzocyclobutenone is achieved via initial C1-C8 bond oxidative addition, followed by rhodacycle isomerization via decarbonylation and CO insertion. Analysis of different ligand steric parameters, ligand steric contour maps, and the computed activation barriers revealed the origin of the positive correlation between ligand bite angle and reactivity. The increase of reactivity with bulkier ligands is attributed to the release of ligandsubstrate repulsions in the P-Rh-P plane during the rate-determining CO insertion step. The enantioselectivity in reactions with the (R)-SEGPHOS ligand is controlled by the steric repulsion between the C8 methylene group in the substrate and the equatorial phenyl group on the chiral ligand in the olefin migratory insertion step.