12-Molybdophosphoric acid catalyzed transfer hydrogenation of nitrobenzene by hydrazine in a homogeneous phase is studied using UV VIS, ESR, P-31 NMR, FTIR, and XPS, The role of nitrobenzene and solvents on the oxidation state of molybdenum and hence the catalytic activity is elucidated. Breakdown of the Keggin structure leads to a loss in catalytic activity. While hydrazine reduces the catalyst to form the active Mo(V) species, nitrobenzene reoxidizes the catalyst to the Mo(VI) state, thereby completing the catalytic cycle, Nitrobenzene also maintains part of the catalyst in the (VI) state, thus preventing deep reduction and hence structural degradation.