The effect of hydroxy and carboxylic acid substances on lactide polymerization in the presence of stannous octoate was investigated. A polymerization mechanism was postulated to attempt to explain the controversies existing in the literature and also to explain our experimental observations. Stannous alkoxide, a reaction product between stannous octoate and alcohol, is proposed as the substance initiating the polymerization through coordinative insertion of lactide. Alcohol can affect the polymerization through the reactions of initiator formation, chain transfer, and transesterfication. Carboxylic acid affects the polymerization through a deactivation reaction. Experiments showed that alcohol increased PLLA production rate while carboxylic acid decreased it. Both alcohol and carboxylic acid reduced PLLA final molecular weight. The higher the alcohol concentration, the lower the polymer molecular weight. However, the final molecular weight of PLLA was not sensitive to the carboxylic acid concentration. A polymerization induction period was observed at high carboxylic acid concentration, due to the deactivation reaction caused by carboxylic acid.