C-H bond activation was observed in a novel PCO ligand 1 (C6H(CH3)(3)(CH2OCH3)(CH2P(t-Bu)(2))) at room temperature in THF, acetone, and methanol upon reaction with the cationic rhodium precursor, [Rh(coe)(2)(solv)(n)]BF4 (solv = solvent; coe = cyclooctene). The products in acetone (complexes 3a and 3b) and methanol (complexes 4a and 4b) were fully characterized spectroscopically. Two products were formed in each case, namely those containing uncoordinated (3a and 4a) and coordinated (3b and 4b) methoxy arms, respectively. Upon heating of the C-H activation products in methanol at 70 degreesC, C-C bond activation takes place. Solvent evaporation under vacuum at room temperature for 3-4 days also results in C-C activation. The C-C activation product, ((CH3)Rh(C6H(CH3)(2)(CH2OCH3)(CH2P(t-Bu)(2))BF4), was characterized by X-ray crystallography, which revealed a square pyramidal geometry with the BF4- anion coordinated to the metal. Comparison to the structurally similar and isoelectronic nonchelating Rh-PC complex system and computational studies provide insight into the reaction mechanism. The reaction mechanism was studied computationally by means of a two-layer ONIOM model, using both the B3LYP and mPW1K exchange-correlation functionals and a variety of basis sets. Polarization functions significantly affect relative energetics, and the mPW1K profile appears to be more reliable than its B3LYP counterpart, The calculations reveal that the electronic requirements for both C-C and C-H activation are essentially the same (14e intermediates are the key ones). On the other hand, the steric requirements differ significantly, and chelation appears to play an important role in C-C bond activation.