The mechanism for ethylene oligomerization by (acac)NiH has been studied using density functional theory (DFT). The transition states for chain propagation and chain termination were optimized and the related reaction barriers calculated. Several possible mechanisms were considered for the chain termination step. Chain termination by beta-hydrogen elimination was found to be energetically unfavorable, and is not likely to be important. Instead, beta-hydrogen transfer to the incoming ethylene unit seems to be operative. The most favorable beta-hydrogen transfer pathway has two transition states. The first leads from a weak pi-complex between an incoming ethylene unit and (acac)NiCH(2)CH(2)R to an intermediate in which the two olefins C2H4 and H(2)CCHR both are strongly pi-complexed to the nickel hydride (acac)NiH. The second barrier takes the intermediate to another weak pi-complex between (acac)NiCH2CH3 and H2C=CHR from which the oligomer H2C=CHR can be released and the catalyst (acac)NiCH2CH3 regenerated. Due to the mechanism of chain termination, the actual catalyst is proposed to be (acac)NiCH2CH3 whereas (acac)NiH serves as a precursor or precatalyst.