In this paper, using DFT methods and reactivity indices, we show that the oxidative degradation of azo dyes occurs through the cleavage of the N-N bond following the hydroxyl radical addition to the chromophore. The geometries for two experimentally proposed reaction pathways regarding the cleavage of the C-N and N-N bonds for Cl- and CH3-substituted azo dye 4-(4'-sulfophenylazo)phenol are optimized at the B3LYP/ 6-31G(d) level of theory, and energies are further refined by single-point calculations at MPW1K/6-31+G(d,p)HB3LYP/6-31G(d). Potential energy surfaces (PES) are compared for the two mechanisms to determine the energetically more favorable mechanism as well as to explain the huge reactivity difference between the Cl- and CH3-substituted derivatives. Reactivity indices are used in the search for competing reactions.