Density functional theory approach was used for the 4-methyl-2,3-dihydro-1,5-benzodiazepin-2-one compound to determine the mechanism of hydrazinolysis of 4-substituted 2,3-dihydro-1,5-benzodiazepin-2-ones. Single point computations at the MP2/6-311+G(d,p)//B3LYP/6-31G(d) level were performed for the more precise energy prediction. The solvent effect was taken into account by carrying out single point calculations using the PCM methodology. The obtained results show that in the investigating mechanism the first step consists of the hydrazine molecule addition to the azomethine bond of the 4-methyl-2,3-dihydro-1,5-benzodiazepin-2-one. Further cyclization occurs with pyrazole ring formation, and then the diazepine ring opening is revealed. Finally, removal of o-phenylendiamine leads to 3-methylpyrazolone-5 as a main product that is in agreement with the experimental observation. The final step is a rate-determining step of this reaction.