We present a comprehensive theoretical investigation of the mechanism for cyclodimerization of butadiene by the generic [bis(butadiene)(NiPH3)-P-0] catalyst employing a gradient-corrected DFT method. We have explored all critical elementary steps of the whole catalytic cycle, namely, oxidative coupling of two butadienes, reductive elimination under ring closure, and allylic isomerization. Oxidative coupling of two butadienes in the [bis(butadiene)(NiL)-L-0] complex and reductive elimination in the [(bis(eta(3))-octadienediyl)(NiL)-L-II] species take place under different stereocontrol, which makes isomerization indispensable. Commencing from a preestablished equilibrium between several configurations of the [(octadienediyl)(NiL)-L-II] complex, the major cyclodimer products, namely, VCH, cis-1,2-DVCB, and cis,cis-COD, are formed along competing reaction paths via reductive elimination, which is found to be the overall rate-determining step. Careful exploration of different possible conceivable routes revealed that bis(eta(1)) species are not involved as critical intermediates either in reductive elimination or in isomerization along the most feasible pathway. The regulation of the selectivity of the cyclodimer formation based on both thermodynamic and kinetic considerations is outlined.