The mechanism of redox-neutral Rh(III)-catalyzed coupling reactions of arylnitrones with alkynes was investigated by density functional theory (DFT) calculations. The free energy profiles associated with the catalytic cycle, involving C(sp(2))-H activation, insertion of alkyne, transfer of O atom, cyclization and protodemetalation, are presented and analyzed. An overwhelming preference for alkyne insertion into Rh-C over Rh-O is observed among all pathways, and the most favorable route is determined. The pivalate-assisted C-H activation step is turnover-limiting, and the cyclization step determines the diastereoselectivity of the reaction, with the stereoselectivity arising mainly from the difference of noncovalent interactions in key transition states. The detailed mechanism of O atom transfer, Rh-III-Rh-I-Rh-III versus Rh-III-Rh-V-Rh-III cycle, is discussed.