Aluminum chloride, in the absence of solvent and moisture, was observed to exert a negligible catalytic effect upon the chlorination of toluene, but in the presence of atmospheric moisture, a very large catalytic effect was evident. DFT calculations were performed on a number of possible intermediates involved in the chlorination process. The calculations suggest that dimeric aluminum chloride predominates in the absence of solvents or moisture, and it is not active as a catalyst. It is suggested that HCl is produced by reaction of water with the aluminum chloride leading to the formation of monomeric complexes with molecular chlorine. These complexes are believed to serve as the electrophile during catalytic toluene chlorination. The results further suggest that very strong complexes can form between water and monomeric aluminum chloride. Complexes between aluminum chloride and toluene were also identified in the calculations, but their catalytic significance remains unclear.