First-principles quantum calculations are potentially of great value for assessing the plausibility of proposed catalytic reaction mechanisms. The present analysis of reaction pathways and energetics for key elementary steps in the catalytic decomposition of NO to N-2 + O-2 by Cu-exchanged zeolites yields novel insights into this widely studied reaction. We find evidence for a pathway involving two successive O-atom transfers to an isolated, zeolite-bound Cu+ center, initiated by formation of a short-lived and difficult to detect isonitrosyl intermediate, and yielding sequentially N2O and Cu-bound O followed by N-2 and Cu-bound O-2. The calculations allow us to identify a complete catalytic cycle with reasonable energetics.