A theoretical investigation of the mechanism of the CpCoL2 (L = CO, PR3, olefin) catalyzed acetylene cyclotrimerization reaction has been carried out at the ab initio and density functional theory (DFT) levels. The mechanism begins with a stepwise pair of ligand substitution reactions in which precatalyst CpCo(PH3)(2) (1) is converted, via CpCo(PH3)(eta(2)-C2H2) (2), to CpCo(eta(2)-C2H2)(2) (3) with the liberation of 11.3 kcal/mol at the B3LYP level. Oxidative coupling of the alkyne ligands in 3 to give a cobaltacyclopentadiene complex (4) is exothermic by 13.1 kcal/mol and is predicted to occur in a facile manner (Delta H double dagger = 12.8 kcal/mol). Reductive cyclization of the bidentate C4H4 ligand in 4 to generate CpCo(eta(4)-cyclobutadiene) (8) is considerably exothermic (Delta H = -34.0 kcal/mol). However, the least motion pathway that transforms 4 directly into 8 which conserves a mirror plane is found to be symmetry forbidden, implying the presence of a large barrier. Coordination of a third acetylene to 4 results in the formation of CpCo(C4H4)(eta(2)-C2H2) (5). Energetically, this third acetylene is weakly bound (12.4 kcal/mol). This is attributed to the parallel orientation the acetylenic C-C bond vector occupies with respect to the Co-Cp bond axis. Collapse of 5 to CpCo(eta(4)-C6H6) (7) occurs in a kinetically very facile process (Delta H double dagger = 0.5 kcal/mol) reflecting the extremely exothermic nature of this transformation (Delta H = -81.4 kcal/mol). An alternate path converting 5 to 7 via the intermediacy of a cobaltacycloheptatriene complex (6) was found to be energetically prohibitive due to the symmetry-forbidden nature of the reductive elimination converting 6 to 7. In addition, a stationary point corresponding to 6 on the B3LYP potential energy surface could not be located. Completion of the catalytic cycle is achieved via a stepwise ligand substitution process in which two acetylene molecules displace the arene in 7 to regenerate 3 with the release of 7.4 kcal/mol at the B3LYP level. Two alternative pathways leading to arene formation in which a phosphine intercepts 4 and remains attached to the Co atom throughout the arene construction process were found to be unlikely mechanistic candidates.