The C-sp3-C-sp2 vs C-sp3-C-sp3 site selectivity in the C-C bond activation in Rh-catalyzed ring opening of benzocyclobutenol was systematically investigated using density functional theory (DFT). The catalytic cycle includes three elementary steps: the proton transfer from the substrate to a rhodium hydroxide, the C-C cleavage, and the proton transfer from water onto a carbon forming the final product with regeneration of the rhodium hydroxide. The site selectivity is determined. by the C-C cleavage step; the C-sp3-C-sp2 cleavage is favored over the C-sp3-C-sp3 cleavage because the former transition state is stabilized by an interaction between the benzene ring of the substrate and Rh. DMSO, a more polar solvent, reduces the site selectivity as the more polar C-sp3-C-sp3 transition state (TS) is stabilized more than the C-sp3-C-sp2 TS and decreases the advantage of the latter TS. DPPF ligand is bulky, and the steric repulsion on the tighter C-sp3-C-sp2 TS causes the loss of the site selectivity. For the even more crowded Rh(P(t-Bu)(3))(2) catalyst, one phosphine has to dissociate before the C-C cleavage reaction takes place, and the advantage of the C-sp3-C-sp2 TS is regained for the less crowded RhP(t-Bu)(3) active catalyst.